Waste Management, Inc.
(NYSE:WM) options volume went through the roof yesterday, as over 14,000 contracts traded, compared to expected daily volume of less than 1,000. Almost all of this occurred on the call side, particularly at the November 42 strike, where 13,361 contracts changed hands. The lion's share of the contracts crossed at the ask price, and open interest soared overnight, pointing to buy-to-open activity. Data from the International Securities Exchange (ISE) confirms this theory, as well.
Digging deeper, we notice a couple of large block trades, consisting of 9,181 contracts and 1,200 contracts. According to Trade-Alert
, these lots were freshly initiated by a single individual for $0.55 per contract, meaning the breakeven price for the transactions is $42.55 (strike price plus premium paid). WM shares currently sit at $40.74, so in order for yesterday's bullish speculator to be in profitable territory, he needs the stock to advance at least 4.4% in time for the closing bell on Nov. 15, when the back-month options expire.
Waste Management was last seen above the aforementioned strike in late September, when it ran into resistance at the 42.50 level -- site of the stock's Aug. 15 bear gap. Currently, the shares are sitting beneath their 10-day moving average, which pressured them lower throughout much of June and August. However, even if the equity fails to rally back above the strike by expiration, the most yesterday's trader has at stake is his initial cash outlay. (Of course, given WM's fairly high levels of short interest -- indeed, it would take over two weeks to cover the shorted shares, at the stock's average daily trading volume -- it's also possible the speculator was seeking protection
against a short-term rebound.)
On a separate but related note, Waste Management is scheduled to report its third-quarter earnings before the market opens on Oct. 29. The consensus analyst estimate has the company netting a profit of 62 cents per share, or a penny more than it did one year ago. Looking back, WM has only exceeded its per-share earnings estimates in two out of the previous eight quarters.
This article by Alex Eppstein was originally published on Schaeffer's Investment Research.
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No positions in stocks mentioned.