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Option Activity Alert: CF Industries Holdings and General Electric Company

Posted
8/17/2010 1:35:00 PM
By: Schaeffer's Investment Research
Referenced Stocks:CF;GE;POT

Traders on Monday set their sights on CF Industries Holdings, Inc. ( CF ) and General Electric Company ( GE ). CF was popular among call players, with bullish option volume rising well beyond typical levels. Conversely, struggling GE was targeted by a crop of very short-term put players placing their pre-expiration bets.

CF Industries Holdings, Inc.

CF attracted the attention of call players on Monday, with volume accelerating to 1.32 times the usual level. Nearly 9,000 calls changed hands on CF during the course of the session, compared to fewer than 3,500 puts.

On the International Securities Exchange (ISE) alone, speculators on Monday bought to open 2,180 calls on CF, along with just 121 puts. The equity's single-day call/put volume ratio of 18.02 underscores a strong preference for bullish bets over their bearish counterparts.

In fact, traders on the ISE have rarely shown a greater appetite for call options on CF. The stock's 10-day ISE call/put volume ratio weighs in at 12.81, as nearly 13 times more calls than puts have been bought to open during the past two weeks. This ratio ranks higher than 97.6% of other such readings taken within the previous year, suggesting that options players have scooped up calls over puts at a faster pace less than 3% of the time.

CF SOIR Likewise, CF's Schaeffer's put/call open interest ratio (SOIR) arrives at a slim 0.47, with calls more than doubling puts among options slated to expire within three months. This ratio ranks in the 25th annual percentile, as short-term options traders have been more optimistically aligned just one-quarter of the time during the past year.

Most of Monday's call buying was centered on CF's September 90 call, where about 2,000 contracts were added to open interest overnight. This overhead call strike is now home to 6,470 contracts in open interest.

Meanwhile, thanks to today's merger-and-acquisition news for sector peer Potash Corp. of Saskatchewan ( POT ), calls continue to dominate on CF. Roughly 13,000 calls changed hands during the first half of today's session, and it looks like traders are buying new bullish bets at the stock's August 90 strike.

Even prior to today's buyout-related boost, CF was enjoying a bout of technical strength on the charts. The stock has cruised higher since early June along the support of its 10-day and 20-day moving averages, and CF's bullish gap above $88 this morning could translate to an additional layer of technical support going forward.

Daily Chart of CF since June 2010 With 10-Day and 20-Day Moving Averages

General Electric Company

Blue-chip conglomerate GE was the center of some put-buying attention on Monday, with traders on the ISE buying to open 2,215 puts on the stock during the course of the session. By comparison, only 1,342 calls were purchased on GE -- netting the shares a single-day ISE put/call volume ratio of 1.65.

Taking a slightly longer-term look, GE's 10-day ISE put/call volume ratio stands at 0.96, in the 89th annual percentile. This elevated percentile rank reveals that traders on this exchange have purchased bearish bets over bullish at a faster pace only 11% of the time during the past year.

In the same skeptical vein, GE's SOIR is currently docked at 1.10, in the 90th annual percentile. In other words, short-term options traders have been more put-heavy only 10% of the time during the prior 52 weeks.

Monday's most active strike was the August 15 put, where 8,116 contracts were exchanged -- 73% at the ask price, suggesting they were most likely purchased. Open interest at this strike rose overnight by 4,077 contracts, confirming that new puts were added here yesterday. With GE trading just shy of $16 at last check, these soon-to-expire puts are out of the money by a slim margin.

This rising tide of negativity coincides with a period of bearish price action for GE. The stock tumbled below support at its 20-week and 32-week moving averages in May, and these trendlines have since switched roles to act as resistance. In fact, the duo recently completed a bearish cross, confirming GE's downward momentum.

Weekly Chart of GE since March 2009 With 20-Week and 32-Week Moving Averages

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