Sizzling Sears Stock Swarmed by Option Bulls

Despite gains in Sears stock, the retailer remains at risk of bankruptcy

Mar 29, 2017 at 1:54 PM
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Sears stock is finally cooling off after gaining for four straight days, and being as much as 12% higher this morning. In fact, the shares were earlier trading above their 200-day moving average for the first time since August. Not surprisingly, SHLD options traders have been targeting calls at an accelerated rate in recent sessions.

Yesterday, call volume hit a 12-month high of 42,395 contracts. Today, SHLD calls are on track to finish in the 99th percentile of their annual range, with 14,000 contracts on the tape so far -- compared to an average daily volume of 8,757.

Digging deeper, it appears SHLD options traders have been taking a longer-term view toward the retail stock. Seeing the largest increases in open interest over the last five sessions are the January 2019 10- and 20-strike calls, adding 5,989 and 4,610 contracts, respectively. Based on Trade-Alert data, it appears buyers have opened new positions, expecting extended gains in Sears stock through January 2019 expiration.

What could work in favor of call buyers is a heavy accumulation of short interest on SHLD. Over 17 million shares are sold short, which would take almost three weeks to cover, at the stock's average daily trading rate. In other words, there's plenty of pent-up buying power to further fuel SHLD's rally.

That said, Sears stock was last seen 0.1% lower at $11.29, and remains a longer-term laggard -- down 25% year-over-year amid bankruptcy rumblings. Today's losses might be more directly related to the shares' 14-day Relative Strength Index (RSI), which settled Tuesday at 72 -- in overbought territory.

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