GT Stock Downgrade Sparks Heavy Options Trading

Speculators appear to be betting on a big bounce for GT

Aug 31, 2018 at 2:26 PM
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The shares of Goodyear Tire & Rubber Co (NASDAQ:GT) have plummeted 5.2% today to trade at $22.30 -- pacing toward a fourth straight loss -- after Berenberg downgraded the stock to "hold" from "buy," and cut its price target to $23 from $24. The drop has sparked a rush of activity in GT's options pits, too, with volume running at nearly five times the average intraday rate.

By the numbers, 4,271 puts and 3,151 calls have traded on GT. The April 20 put is most active, but appears to be tied to stock. Elsewhere, vanilla options traders may be purchasing new positions at the October 26 call for a volume-weighted average price of $0.10. If this is the case, breakeven for the call buyers at the close on Friday, Oct. 19 -- when the options expire -- is $26.10 (strike plus premium paid).

More broadly, speculators at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been buying to open GT calls over puts at an accelerated clip, albeit amid relatively low absolute volume. The stock's 10-day call/put volume ratio of 1.17 ranks in the 90th annual percentile.

Even with the security's technical troubles, though, call option premiums are near parity with their put counterparts. GT's 30-day implied volatility skew of 3.4% ranks in the 1st percentile of its annual range.

Looking closer at the charts, GT has been sliding since topping out at a 12-month high of $36.07 in late January, falling to a three-year low of $20.75 on July 27. After retracing roughly 23.6% of this sell-off, the stock was rejected in the formerly supportive $24.50-$25.00 region and is now on track for an August loss of almost 8%.

gt stock daily chart aug 31

 

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