Option Bear Targets Bigger Livent Losses After Downgrade

BofA-Merrill Lynch downgraded LTHM to "underperform"

by Karee Venema

Published on Aug 12, 2019 at 11:16 AM
Updated on Aug 12, 2019 at 12:44 PM

BofA-Merrill Lynch downgraded Livent Corp (NYSE:LTHM) to "underperform" from "neutral," and slashed its price target by $3 to $7. The analyst in coverage expects "challenged economics" as growth in electric vehicles will not be fast enough to absorb lithium hydroxide production. This comes as electric car maker Nio (NIO) earlier reported disappointing July delivery numbers, citing a challenging Chinese environment.

Against this backdrop, LTHM stock is down 13% at $6.60, headed for its worst day since May 8, when it shed 15.8% on a negative earnings reaction. This is just more of the same for the shares, which have surrendered 59% since opening at $16.25 in their Big Board debut back on Oct. 11. More recently, the equity's bounce off its Aug. 6 record low of $5.49 was quickly halted by its descending 80-day moving average.

The stock's sharp move lower has sent Livent options traders into overdrive. At last check, 6,171 puts were on the tape -- 293 times what's typically seen at this point, and a new record high. By contrast, fewer than 400 calls have traded, though still six times the expected intraday amount.

The bulk of the action has centered at the September 5 put, where it looks like one speculator bought to open a block of 5,300 contracts for an initial cash outlay of $74,200 (number of contracts * $0.14 premium paid * 100 shares per contract). This is the most the put buyer stands to lose, should LTHM settle above $5 at the close on Friday, Sept. 20, while profit will accumulate on a move below breakeven at $4.86 (strike less premium paid).

Today's bearish options activity could be the result of short sellers being sidelined in today's trading, with Livent stock landing on the short-sale restricted list out of the gate. The equity has been a popular target of short sellers, though, with the 20.08 million shares controlled by these bears representing almost 14% of LTHM's available float.

lthm stock daily price chart on aug 12


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