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Profitable Companies: 8 Stocks Backed up by Bullish Options Sentiment

By: Kapitall
Posted: 11/3/2011 6:38:00 PM
Referenced Stocks: AT;MBT;MORN;RSTI;TSM;K;PLL;SBGI

(List compiled by Eben Esterhuizen, CFA)

Before jumping into a new stock investment, it’s important to exercise due diligence and look at a few things – important among them is market sentiment.

Is the market recently bullish on the company? Has it taken a turn for the worse? One way to address these questions is by looking at the stock’s put option / call option ratio (otherwise known as the “put/call”).

This is how it works:

 

Call Options

Selling a call option on a stock you own allows someone else (the call option buyer) to buy your stock at a higher price than today’s at a future date (which the buyer would only do if the stock rises above the set price, called the “strike price”). For selling the call option, you the seller get paid a premium that can be considered additional income.

If the stock does not rise above the strike price, you keep your stock and the premium. If the stock rises above the strike price, you sell your stock at the strike price, which cuts off upward profit potential, but you still keep your premium.

Buying a call option reflects the opinion that the price of a given stock will rise (bullish).

Put Options

The opposite of calls are puts. Whereas calls are the option to buy the stock, puts are the option to sell a stock in the future at a price fixed today.

A put option reflects an opinion that the price of a given stock will fall (bearish).

Put/Call Ratio

Put/Call ratio is the total number of put options relative to the total number of call options for a given stock. If there are more put options (a put/call ratio greater than 1), then there are more investors who think that the share price will decrease than there are investors who think that the share price will increase.

To put it simply, a rising Put/Call ratio reflects an increase in bearish sentiment, while a decreasing Put/Call ratio reflects an increase in bullish bets.

 

Interested in Analyzing Stocks With Bullish Options Sentiment?

To compile this list, we started by identifying about 200 stocks that have seen a sharp decrease in their Put/Call ratio over the last 20 weeks (i.e. bullish options sentiment).

From this list, we collected data on profit margins, and identified the names that have reported higher than industry average profit margins.

Options traders are bullish on these profitable names–do you agree? Use this list as a starting point for your own analysis.

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1. Access a thorough description of all companies mentioned
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List sorted by the change in Put/Call ratio.

1. Mobile Telesystems OJSC (MBT): Provides telecommunications services primarily in the Russian Federation, Ukraine, Uzbekistan, Turkmenistan, Armenia, and Belarus. Over the last two weeks, the stock's Put/Call ratio changed from 3.2 to 0.29. TTM gross margin at 70.45% vs. industry average at 61.51%. TTM operating margin at 22.39% vs. industry average at 21.74%. TTM pretax margin at 17.02% vs. industry average at 16.35%.

2. Atlantic Power Corporation (AT): Atlantic Power Corporation owns interest in various power projects and a transmission line in the United States. Over the last two weeks, the stock's Put/Call ratio changed from 3.45 to 0.32. TTM gross margin at 50.39% vs. industry average at 33.97%. TTM operating margin at 21.91% vs. industry average at 19.31%. TTM pretax margin at 11.7% vs. industry average at 6.06%.

3. Morningstar Inc. (MORN): Provides independent investment research to investors worldwide. Over the last two weeks, the stock's Put/Call ratio changed from 0.52 to 0.07. TTM gross margin at 71.76% vs. industry average at 42.73%. TTM operating margin at 22.4% vs. industry average at 16.68%. TTM pretax margin at 22.29% vs. industry average at 12.35%.

4. Rofin-Sinar Technologies Inc. (RSTI): Designs, develops, engineers, makes, and markets industrial lasers and supplies used for material-processing applications worldwide. Over the last two weeks, the stock's Put/Call ratio changed from 0.71 to 0.11. TTM gross margin at 42.03% vs. industry average at 36.3%. TTM operating margin at 14.91% vs. industry average at 9.37%. TTM pretax margin at 14.63% vs. industry average at 9.01%.

5. Taiwan Semiconductor Manufacturing Co. Ltd. (TSM): Engages in the computer-aided designing, manufacturing, packaging, testing, and selling integrated circuits and other semiconductor devices; and manufacturing masks. Over the last two weeks, the stock's Put/Call ratio changed from 0.52 to 0.12. TTM gross margin at 70.95% vs. industry average at 61.18%. TTM operating margin at 36.91% vs. industry average at 26.75%. TTM pretax margin at 39.22% vs. industry average at 26.61%.

6. Kellogg Company (K): Kellogg Company and its subsidiaries manufacture and market ready-to-eat cereal and convenience food products primarily in North America, Europe, Latin America, and the Asia Pacific. Over the last two weeks, the stock's Put/Call ratio changed from 1.48 to 0.35. TTM gross margin at 45.34% vs. industry average at 33.51%. TTM operating margin at 16.01% vs. industry average at 12.18%. TTM pretax margin at 13.45% vs. industry average at 9.75%.

7. Pall Corp. (PLL): Pall Corporation manufactures and markets filtration, purification, and separation products and integrated systems solutions worldwide. Over the last two weeks, the stock's Put/Call ratio changed from 1.1 to 0.29. TTM gross margin at 53.65% vs. industry average at 33.19%. TTM operating margin at 17.23% vs. industry average at 12.86%. TTM pretax margin at 15.31% vs. industry average at 10.87%.

8. Sinclair Broadcast Group Inc. (SBGI): Provides certain programming, operating, or sales services to television stations in the United States. Over the last two weeks, the stock's Put/Call ratio changed from 0.39 to 0.11. TTM gross margin at 62.71% vs. industry average at 42.73%. TTM operating margin at 32.16% vs. industry average at 16.68%. TTM pretax margin at 15.9% vs. industry average at 12.35%