Wooden Shipping

• Posted by Adam Warner
• on October 28th, 2009

Ugly earnings reaction in DRYS yesterday. And the verdict of the options crowd? They want some downside, said Schaeffer’s yesterday.

Put volume is heavy on DryShips Inc. (DRYS) today, in the wake of the shipping issue’s latest quarterly report. Specifically, about 17,000 puts have crossed the tape so far, representing more than three times the expected volume. After taking a closer look at the action, it appears that traders are opening new bearish bets on DRYS.

The stock’s most active put is the January 2010 6 strike, which is just narrowly out of the money at last check. This put has seen more than 6,000 contracts change hands, with 91% trading at the ask price. The January 6 put currently has just 2,023 contracts in residence, suggesting that the bulk of today’s volume consists of newly added positions.

Today’s pessimistically skewed option activity is in sharp contrast to Monday’s pre-earnings speculation. Yesterday, traders on the International Securities Exchange (ISE) bought to open 5,685 calls on DRYS, compared to just 671 puts.

I really don’t love options on single digit names, but would probably make an exception for DRYS as it’s consistently pretty volatile.

Looks like an interesting purchase in that 6 is the low water mark over the past couple month’s. Then again, 6000 contracts is not much at these price levels. Volatiltiy in general feels like a buy in here in the 60′s and 70′s, especially as we near a decent chart point.

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