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Option Activity Alert: Call Volume Builds on SandRidge Energy Inc. Ahead of Earnings

Short sellers might be looking to hedge their bets against another upside surprise

by Elizabeth Harrow (eharrow@sir-inc.com) 11/2/2009 12:15 PM

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SandRidge Energy Inc. (SD: sentiment, chart, options) is attracting bullish attention from option players ahead of its upcoming turn in the earnings spotlight. During the past five days, traders on the International Securities Exchange (ISE) have bought to open 6,393 calls on SD, compared to just 69 puts. In other words, nearly 93 times more calls than puts have been purchased within the past week.

SD SOIR Looking back over the past two weeks' worth of data, SD sports a slightly tamer 10-day ISE call/put volume ratio of 12.13, as speculators have snapped up more than a dozen calls for every put during this time frame. This ratio ranks in the 84th annual percentile, revealing that traders have rarely purchased calls over puts at a faster pace.

Despite the recent rush to buy calls, SD's Schaeffer's put/call open interest ratio (SOIR) is lingering in pessimistic territory. The current SOIR of 0.84 ranks in the 91st annual percentile, indicating that short-term traders have been more bearishly aligned only 9% of the time during the past year.

Having noted the relatively high SOIR reading, it's worth mentioning that this indicator has declined from its Oct. 19 post-expiration perch of 0.90, in the 95th annual percentile. In other words, the level of skepticism among near-term speculators has dropped slightly in recent weeks, and buy-to-open data from the ISE suggests we could see a continuation of this trend.

SD short interest In the November series, the most popular strike is currently SD's 12.50 put, with 5,032 contracts in residence. On the other hand, peak call open interest consists of 3,901 contracts at the November 15 strike. With SD trading near $10.42 today, put players are favoring a more conservative, in-the-money approach. Meanwhile, call players appear to be wagering on a short-term jump for the security.

Alternatively, it's possible that option players aren't feeling especially upbeat toward the stock at all, and instead, the recent influx of call buying has been driven by short sellers looking to hedge their bets ahead of earnings. Short interest on SD surged by 14.4% during the past month, and now accounts for a lofty 22.8% of the equity's available float.

With SD scheduled to unveil its third-quarter earnings after the market closes this Thursday, Nov. 5, it's possible that shorts are covering their bearish bets by purchasing long, out-of-the-money calls. The company has exceeded analysts' consensus profit estimates in each of the previous four reporting periods, giving the bears just cause to feel anxious ahead of the event.

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Option Activity Alert: Skepticism Builds Toward Chevron Corporation

(11/20/2009 2:05:53 PM)

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Option Activity Alert: Skepticism Creeps In on Peabody Energy Corporation

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Option Activity Alert: Bulls Bombard Apple Inc.

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Option Activity Alert: Rising Bullish Speculation on Rosetta Resources Inc.

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Buy-to-open call volume has been steadily building on Rosetta Resources Inc. (ROSE: sentiment, chart, options). During the past 10 days, speculators on the International Securities Exchange (ISE) have bought to open 163.46 calls for every put on the equity, revealing a hefty skew toward bullish bets over their bearish counterparts. This ratio ranks higher than all other such readings taken during the past year, indicating that traders have attained an annual optimistic peak.

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Option Activity Alert: Traders Have Their Doubts About VMware, Inc.

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Option Activity Alert: Put Volume Picks Up on Freeport-McMoRan Copper & Gold Inc.

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Option Activity Alert: Call Volume Builds on SandRidge Energy Inc. Ahead of Earnings

Short sellers might be looking to hedge their bets against another upside surprise

by Elizabeth Harrow (eharrow@sir-inc.com) 11/2/2009 12:15 PM

SD

stocks

options