Time to Bet on Bigger Losses for Dick's Sporting Goods Stock

Short sellers have targeted the retailer recently

Jan 30, 2018 at 11:31 AM
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The shares of Dick's Sporting Goods Inc (NYSE:DKS) made an impressive run higher since their early November lows, but have recently run into multiple layers of resistance. For instance, the stock is backing down from its descending 200-day moving average, and failed in the key $35 region, which is significant for many reasons. This area is where DKS was trading before a major bear gap in August, and is home to the security's 2015-2016 lows and 2007-2008 highs. The 35 strike is also home to peak call open interest in the February and March series of options, adding an extra layer of options-related resistance to the mix.

dks daily chart jan 26

 

In the same vein, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.31 indicates that call open interest more than triples put open interest among options expiring within three months. This ratio sits at the bottom of its annual range, implying that near-term options speculators have rarely been more call-heavy on DKS. Plus, the front-month gamma-weighted SOIR of 0.15 underscores that near-the-money February calls are nearly 10 times more prevalent than puts. An unwinding of optimism in the options pits could weigh on DKS.

Short interest on DKS surged nearly 29% during the most recent reporting period, and now accounts for 12% of the equity's total available float. There's still plenty of room on the bearish bandwagon, though. A continued build in short interest could also drag down DKS.

Now appears to be a prime time to bet on the stock's next leg lower with options. DKS' Schaeffer's Volatility Index (SVI) of 39% ranks in the 16th annual percentile, suggesting low volatility expectations are being priced into short-term contracts.

Subscribers to Schaeffer's Weekend Trader Alert options recommendation service received this DKS commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.

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