Why put sellers like Pacific Sunwear

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Pacific Sunwear of California is facing a bevy of mixed news, but investors apparently want to own the stock.

optionMONSTER's tracking systems detected the sale of about 2,200 June 5 puts on the teen retailer for $0.65. The activity was heavy for a relatively obscure name in option trading, with the total number of contracts Friday exceeding the daily average by 15 times.

PSUN Put selling reflects a willingness to buy a stock at lower prices and the belief that significant downside is limited. Friday's trades come after several sessions recently where PSUN snapped back from losses, which also suggests a constituency of traders are looking to own the stock. (See our Education section)

It might be related to heavy short interest, which totaled 26 percent of the float at the end of last month. If the stock rises further, short sellers may be forced to buy it back aggressively, which would potentially drive it even higher.

PSUN ended the session up 0.17 percent to $5.75. It more than doubled between July and early December, then fell sharply and now appears to be finding support around $5.50 (dark orange line on chart).

The company reported better-than-expected results on Nov. 22, with the loss narrower than forecast and revenue strong. Management also said sales trends were improving--especially for women's apparel.

However, it predicted a weak fourth quarter, with same-store sales dropping as much as 5 percent. The shares dropped briefly on that report but then continued to rally last month, which also suggests that PSUN is in the midst of a potential short squeeze.

(Chart courtesy of tradeMONSTER)



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.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: PSUN

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