Green Mountain Coffee Roasters Call Volume Swells

Schaeffer's Investment Research
  OCT 01, 2013 3:16 PM

Weekly call buyers turn up the heat on GMCR.

 


Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) saw an influx of bullish options activity yesterday, as roughly 33,000 calls changed hands -- more than double the equity's average single-session volume. By contrast, around 20,000 puts crossed the tape. A large portion of the action was focused on the java giant's near-term options, as traders wagered on GMCR to venture higher by week's end.

Most active on Monday was the weekly 10/4 74-strike call, where about 8,150 contracts were exchanged -- the majority of them at the ask price, pointing to buyer-fueled activity. To be more specific, these in-the-money calls traded at a volume-weighted average price (VWAP) of $2.49. Meanwhile, open interest rose by 2,237 contracts overnight, signaling the addition of new long positions. Data from the International Securities Exchange (ISE) corroborates this theory.

By purchasing the calls to open, speculators are betting on the stock to surmount the breakeven rail of $76.49 (strike price plus the VWAP) by this Friday's closing bell, when these weekly options expire. This is just a stone's throw away from GMCR's present perch at $76.23. The delta for this call sits at 0.68, implying it has a more than 2-in-3 chance of moving into the money during its lifetime.

Still, should the shares fall below the strike price, the most yesterday's bulls risk losing is the initial premium paid. Even more comforting, the stock's Schaeffer's Volatility Index (SVI) of 53% ranks lower than 81% of comparable readings taken during the past year, suggesting GMCR's short-term options are inexpensive right now, relatively speaking.

It should be noted, however, that short interest accounts for 23.8% of the coffee king's available float, or the equivalent of more than eight days' worth of pent-up buying pressure, at GMCR's average pace of trading. This raises the possibility that some of the aforementioned call volume could be the work of skeptics looking to hedge their bets, although short sellers typically utilize out-of-the-money options for this purpose.

Green Mountain Coffee Roasters has certainly been an outperformer on the technical front, gaining over 83% so far this year, and more than tripling in value during the past 52 weeks. At last check, the shares were up 1.2% so far this morning.

This article by Terri Stridsberg was originally published on Schaeffer's Investment Research.

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