Option Trader Bets on More Downside For Collapsing DXC Stock

One analyst is saying to buy into the weakness, however

Managing Editor
Oct 24, 2018 at 2:26 PM
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The shares of DXC Technology Co (NYSE:DXC) are down 14.9% to trade at $74.10, careening lower after reports the company let go of the leader of its Americas business. DXC is one of the worst stocks on the New York Stock Exchange (NYSE) today and is currently on the short-sale restricted list (SSR), so options traders are piling on. 

At last check, nearly 36,000 puts have been traded -- 77 times what's typically seen at this point in the day and volume already double the previous July 20 annual high of 17,589. According to Trade-Alert, one traders sold their 5,000 November 75 puts, purchased last Friday, for a $3.5 million profit, and used the proceeds to open a new position of 7,500 contracts at the November 70 put. By doing so, the trader expects even more downside for the security.

Overall, though, there has been a heavier-than-usual call bias among options traders within the past two weeks. Amid light absolute volume, DXC's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at 21.42 and ranks in the 94th annual percentile, showing a heightened interest in call buying relative to put buying. 

Echoing this is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.43, which ranks just 2 percentage point from an annual low. In other words, short-term speculators are more call-heavy than usual toward DXC stock.

On the charts, the equity earlier today fell to an annual low of $69.51, and is heading toward its worst day since March 2001. The equity is now trading below its year-to-date breakeven levels, but analyst at Evercore ISI said this morning to buy into the weakness, reiterating their "outperform" recommendation and $125 price target.

Daily Stock Chart DXC

 

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