TAL Education Puts Hot After Muddy Waters Yells 'Fraud'

TAL stock is short-sale restricted today

Jun 13, 2018 at 2:59 PM
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Muddy Waters issued a scathing note on TAL Education Group (NYSE:TAL) earlier, saying the Chinese after-school tutoring firm was a fraud that "overstated net income by at least 43.6%," and comparing the company to Enron. Carson Block said the investment research company was short TAL stock, and in reaction, the shares have plunged 8.7% to trade at $41.68 -- and options traders are piling on.

At last check, nearly 57,000 puts and roughly 19,000 calls are on the tape -- almost 16 times what's typically seen at this point in the day, and total options volume is at a new 52-week peak. Most active are the June 35 and 40 puts, where it looks like new positions are being purchased. If this is the case, speculators are betting on bigger short-term losses for TAL -- possibly looking for alternative ways to bet bearishly on a stock that's on the short-sale restricted list.

This put-heavy trading is just more of the same for TAL options traders. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day put/call volume ratio of 1.20 ranks in the 83rd annual percentile, meaning puts have been bought to open over calls at a quicker-than-usual clip.

Today's negative price action runs counter to the equity's longer-term uptrend. Heading into the session, TAL shares were boasting a 54% year-to-date lead. In fact, the equity topped out at a record high of $47.63 just yesterday. As such, some of the recent put buying could be at the hands of shareholders looking to protect portfolios against downside risk.


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