Options Traders Blast 2 Volatile Car Stocks

GT hit a five-year low earlier after being downgraded

by Karee Venema

Published on Feb 11, 2019 at 11:44 AM

Goldman Sachs issued a double upgrade for Avis Budget Group Inc. (NASDAQ:CAR) to "buy" from "sell," and lifted its price target to $35 from $30 -- a 36% premium to Friday's close. The brokerage firm said CAR stock "looks attractive for mean reversion," as headwinds to the sector "appear priced in."

In reaction, Avis Budget shares are up 7.2% today at $27.54, and options volume is booming. Already this morning, around 4,100 calls have traded -- 36 times what's typically seen, and four times the number of puts on the tape. Most active are the January 2020 25-strike and February 28 calls, with Trade-Alert suggesting new positions are being purchased at both the long- and short-term options.

More broadly, speculators are more put-heavy than usual toward CAR options expiring in three months or less, per the stock's Schaeffer's put/call open interest ratio (SOIR) of 2.11 -- in the 99th annual percentile. The March 25 put is home to peak open interest in the front three-month series of options, and data from the major exchanges confirms notable buy-to-open activity here, meaning traders are bracing for a move below $25 by March options expiration.

Looking at the charts, CAR struggled throughout most of 2018, shedding 57% from its March 20 two-year peak at $50.88 to its Jan. 3 19-month low of $21.63. Since then, Avis Budget has rebounded atop a trendline connecting higher lows. Today's gap puts the car rental name on pace to close above its 80-day moving average for the first time since early May.

car stock daily chart feb 11

The shares of Goodyear Tire & Rubber Co (NASDAQ:GT), on the other hand, are trading down 3.3% at $18.07 -- fresh off a five-year low of $18.02 -- after the stock was downgraded to "underperform" from "neutral" at Longbow Research. Additionally, J.P. Morgan Securities cut its GT price target to $25 from $27. These bear notes follow the tiremaker's fourth-quarter profit and revenue misses last Friday morning, which sent the stock down 9.1%.

In the options pits, around 1,800 calls have been exchanged -- three times what's typically seen -- while the 1,100 puts on the tape, fewer than expected at this point. The weekly 3/1 19- and 19.50-strike calls are most active, and it looks like one speculator may be using the weekly options to initiate a spread.

Widening the scope reveals an extreme put-skew among short-term traders, per the stock's SOIR of 2.48, which registers in the elevated 87th percentile of its 12-month range. The April 20 put is the top open interest position in the front three-months' series of options, and data from Trade-Alert points to some buy-to-open activity here in early January, when GT stock was trading above $21.

Since the start of 2019, the shares have surrendered more than 11%. This is just more of the same for GT, though, which gave back 36.8% in 2018 -- its biggest annual loss since 2008. Pressuring the shares lower has been their 120-day and 200-day moving average, and the equity is now comfortably below a short-term floor near $19.

gt stock daily chart feb 11

 


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