Lumber Liquidators Puts Hot After Analyst Screams 'Buy'

The LL May 26 put is being bought to open

Mar 16, 2018 at 2:34 PM
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Lumber Liquidators Holdings Inc (NYSE:LL) has jumped 3.3% to trade at $25.39, after Loop Capital upgraded the retail stock to "buy" from "hold," and boosted its price target to $30 from $22 -- citing expectations for continued growth in both same-store sales and market share. Options traders aren't buying the upside, though, with LL puts flying off the shelves today.

Most recently, 2,798 put options had traded on LL -- three times what's typically seen at this point in the session -- compared to around 904 calls. Nearly 83% of the day's options volume has centered at the May 26 put, and all signs suggest new positions are being purchased here. The volume-weighted average price (VWAP) on the puts is $2.62, making breakeven for the premium buyers $23.38 (strike less VWAP).

This bearish positioning is hardly new. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), LL's 10-day put/call volume ratio of 6.58 ranks in the 100th annual percentile. In other words, puts have been bought to open over calls at a faster-than-usual clip, albeit amid relatively low absolute volume.

Looking at the charts, it's no surprise to see options traders bet on more downside. Since topping out at a two-year high of $41.33 in early September, LL stock has shed 38%. And despite coming off their late-February lows north of $20, the shares are still staring up at their 80-day moving average -- a trendline that cushioned pullbacks in most of 2017, but could now work as resistance.

Regardless, those purchasing short-term contracts are getting a relatively good deal. In fact, LL's Schaeffer's Volatility Index (SVI) of 44% ranks in the 18th percentile of its annual range, pointing to muted near-term volatility expectations at the moment. Plus, the stock's Schaeffer's Volatility Scorecard (SVS) reading comes in at 89 (out of a possible 100), suggesting the stock has tended to make outsized moves over the past year, relative to what the options market has priced in.


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