3 Stocks to Watch: Costco Wholesale, Eagle Bulk Shipping, and FirstEnergy

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Today's column includes a look at a rise in put trading on Costco Wholesale ( COST ), while call volume jumped on Eagle Bulk Shipping ( EGLE ) and FirstEnergy ( FE ). Each day, 3 Stocks to Watch focuses on stocks seeing heavy options trading and gives you a unique insight into each stock's sentiment backdrop.

Costco Wholesale ( COST )

Costco Wholesale Corp. ( COST ) announced before the open this morning that January same-store sales jumped a higher-than-expected 9%. The results were boosted by higher gasoline prices and strengthening foreign currencies. The consensus estimate was for same-store sales to rise 6.1%, including the impact of fuel prices.


COST recorded 16% same-store sales growth at its international segment, while U.S. same-store sales rose 6%. Net sales jumped 12% to $6.30 billion.

Options players jumped on the security ahead of the event, snatching up the security's puts. COST saw more than 32,200 put contracts cross the tape, which is nearly 16 times the stock's average daily trading put volume, according to data from WhatsTrading.com. In addition, 74% of the volume changed hands at the ask price.

Pessimism is on the rise toward the retailer. The International Securities Exchange (ISE) reported that nearly five puts were purchased to open for every one call purchased to open during the past 10 trading sessions. This ratio of puts to calls is higher than 96% of all those taken during the past year.

In addition, the Schaeffer's put/call open interest ratio (SOIR) for COST comes in at 1.23, as put open interest outnumbers call open interest among options slated to expire in less than three months. This ratio of puts to calls is higher than 71% of all those taken during the past 52 weeks. In other words, short-term options players have been more pessimistically aligned toward the shares only 29% of the time during the past 12 months.

Meanwhile, Wall Street is split when it comes to the wholesale retailer. According to Zacks , the stock has earned 14 "buy" ratings, 12 "holds," and two "strong sells." There is ample room for potential upgrades following the company's strong sales report.

Technically speaking, the shares of COST are down nearly 2% since the beginning of the year. Longer term, the equity's uptrend has stalled in the 74 area and has fallen below support at its 10-week moving average. Potential support now lies at the 68 level in the form of the stock's rising 20-week trendline.

 WEEKLY CHART OF COST SINCE JUNE 2010 WITH 10-WEEK AND 20-WEEK MOVING AVERAGES

Eagle Bulk Shipping ( EGLE )

Call trading was brisk on Eagle Bulk Shipping Inc. ( EGLE ) on Wednesday, as more than 23,800 calls crossed the tape. This surge in call volume was more than 25 times the stock's average daily call trading volume, according to data from WhatsTrading.com. In addition, approximately 84% of the volume changed hands at the ask price, indicating that these contracts were mostly purchased.

This rush to pick up calls runs counter to the stock's recent trend. The ISE reports that six puts have been purchased to open for every one call purchased to open during the past 10 trading sessions. This ratio of puts to calls is higher than 95% of all those taken during the past year.

Meanwhile, the SOIR for EGLE comes in at 1.68, as put open interest outnumbers call open interest among options slated to expire in less than three months. This ratio of puts to calls is higher than 97% of all those taken during the past year. In other words, short-term options players have been more pessimistically aligned toward the shares only 3% of the time during the past 12 months.

Short sellers have also accumulated a sizable pessimistic position against the shares. While the number of EGLE shares sold short dropped by 5% during the most recent reporting period to 3.2 million, this accumulation of pessimistic positions still accounts for 5% of the company's total float.

From a technical perspective, the shares of EGLE gapped lower in late January following the bankruptcy of a major customer and are now down more than 12% since the start of 2011. However, the stock has recently rallied above resistance at its 10-day moving average. The equity must still contend with resistance at its 20-day trendline. These moving averages have guided the security lower since mid-November.

 DAILY CHART OF EGLE SINCE NOVEMBER 2010 WITH 10-DAY AND 20-DAY MOVING AVERAGES

FirstEnergy ( FE )

Options players jumped on FirstEnergy Corp. ( FE ) yesterday, as more than 184,000 contracts crossed the tape. This surge in volume was more than 60 times the stock's average daily trading volume of 3,043 contracts, according to data from WhatsTrading.com. In addition, approximately, 99% of the volume changed hands on the call side.

The ISE has seen a spike in call trading recently. During the past two trading weeks, 11.6 calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 57% of all those taken during the past 52 weeks.

However, the recent call buying may signify a shift in sentiment, and there is ample room for pessimism to unwind. The SOIR for FE comes in at 0.68, which is at an annual peak. In other words, short-term options players have not been more pessimistically aligned toward the shares at any other time during the past year.

Short sellers are adding to their pessimistic positions. During the past month, the number of FE shares sold short increased by 6% to 31 million. This accumulation of pessimistic positions accounts for 10% of the company's total float and is seven times the stock's average daily trading volume.

Wall Street also has its doubts. According to Zacks , the stock has earned two "strong buys," 12 "holds," and two "sells."

From a technical perspective, the shares of FE are up more than 9% since the beginning of the year. The security has risen along the support of its 10-day and 20-day moving averages since the beginning of December.

 DAILY CHART OF FE SINCE NOVEMBER 2010 WITH 10-DAY AND 20-DAY MOVING AVERAGES

Trading the News: A Contrarian View. Check out this special report from Bernie Schaeffer here.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

All Rights Reserved. Unauthorized reproduction of any SIR publication is strictly prohibited.



This article appears in: Investing , Options

Referenced Stocks: COST , EGLE , FE

Schaeffer's Investment Research

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