Put buyers are targeting a quick move to seven-year lows
Dick's Sporting Goods, Inc. (NYSE:DKS) reported third-quarter earnings and revenue that beat estimates, but the sporting goods retailer warned 2018 profit could drop by as much as 20%. This last data point may be what has DKS stock down 5.5% today to trade at $24.94 -- and options traders targeting new lows by week's end.
At last check, 19,177 puts and 14,868 calls had changed hands on DKS -- 10 times what's typically seen at this point in the day, and total options volume pacing in the 99th annual percentile. Most active by a mile is the November 23 put, with 11,970 contracts traded. It seems safe to assume new positions are being purchased here, as traders bet on the security breaching $23 by front-month options expiration at this Friday's close.
This accelerated options activity just echoes a recent trend seen at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The stock's 10-day put/call volume ratio of 1.09 ranks higher than 71% of all comparable readings taken in the past year, meaning puts have been bought to open over calls at a faster-than-usual clip.
It looks like a number of these options traders have targeted the November 23 put, too, which has seen one of the biggest increases in open interest over this time frame. Regardless of where Dick's Sporting Goods settles the week, the most these put buyers stand to lose is the initial premium paid.
This skepticism is seen outside of the options pits, too. Short interest on DKS has more than doubled since the start of the year to 12.53 million contracts -- the most since 2009. Plus, 23 of 24 analysts maintain a "hold" or "strong sell" rating on the shares.
This isn't too shocking, considering DKS is down almost 53% year-to-date -- with the steady stream of selling pressure from shorts likely creating bigger headwinds. And while the shares haven't traded south of $23 since February 2010, they hit a seven-year low of $23.88 on Nov. 1. A short-lived rally off this bottom was quickly rejected by Dick's Sporting Goods' 50-day moving average, which helped support the shares before a mid-May earnings-induced bear gap.