Bullish Options Hot as Overstock Races Higher

Some are suggesting an OSTK short squeeze could be underway

Jun 12, 2018 at 2:47 PM
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Overstock.com Inc (NASDAQ:OSTK) is jumping today, with some pointing to a broader retail rally, and others hinting at a possible short squeeze. Whatever the reason, OSTK shares are up 9.4% at $38.90, and options traders are blasting the blockchain stock.

With roughly 90 minutes left in today's session, Overstock has around 9,300 calls and 3,700 puts on the tape -- more than three times what's typically seen at this point. Speculators are targeting an even bigger breakout for the stock, with buy-to-open activity detected at the June and July 40 calls.

This activity just echoes the broader trend seen in OSTK's options pits. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 4.18 ranks in the 71st annual percentile, meaning calls have been bought to open over puts at an accelerated clip in recent weeks.

And while part of this action could be of the traditional bullish variety, it's also possible short sellers are protecting their bearish bets against any upside risk. The most recent reporting period revealed 8.83 million OSTK shares are dedicated to short interest -- almost 54% of the stock's available float, or 6.2 times the average daily pace of trading.

Regardless, those targeting short-term options are getting a relatively good deal. OSTK's Schaeffer's Volatility Index (SVI) of 64% ranks in the 27th annual percentile, meaning near-term options are pricing in low volatility expectations at the moment. Plus, the security's Schaeffer's Volatility Scorecard (SVS) is docked at a lofty 97 (out of a possible 100), indicating Overstock has tended to make outsized moves over the past year, relative to what the options market has expected.

Looking at the charts, Overstock shares have sold off sharply since topping out at a record high of $89.80 back in January. However, the stock is pacing for its third straight daily win today -- which would mark its longest winning streak since mid-May -- and its biggest one-day gain since April 4.

ostk stock daily price chart on june 12


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