I've been threatening for a while to get back on the ethanol beat.
[thank you, the convertible bra and Swedish model posts were, ummm, off-topic -ed]
I'd be inclined to fade the option players on ADM, especially after Cargill's report.
The stock is trading at $28.29, down 48 cents on the day.
From Schaeffer's Research:
Speculative investors have rarely been more bearishly aligned
Archer Daniels Midland Company (ADM) attracted the attention of put players on Tuesday, as 9,516 of these bearishly oriented options crossed the tape. This uptick in put trading represented about three times the equity's expected daily put volume; meanwhile, fewer than 5,000 calls changed hands on ADM yesterday.
During the course of the session, traders on the International Securities Exchange (ISE) bought to open 2,445 puts on ADM, compared to just 162 calls. The security's single-day ISE put/call volume ratio arrived at 15.09, revealing a distinct bias toward pessimistic positions.
Taking a closer look at Tuesday's trading, it looks as though one speculator was responsible for the bulk of this ISE put volume. Around 3 p.m., a block of 2,400 contracts traded near the ask price on ADM's May 26 put, suggesting they were purchased. Simultaneously, a matching block of 2,400 contracts crossed the tape near the bid price on ADM's May 28 put, indicating these puts were sold. Open interest rose at both strikes overnight, confirming these were all newly opened contracts.
In other words, the day's uptick in put trading wasn't necessarily bearish in nature, since this appears to be a neutral-to-bullish short put spread on ADM. By selling the May 28 puts, the trader is revealing that he expects the stock to hold steady at or above this strike through front-month expiration. Meanwhile, the purchased May 26 puts serve as a built-in hedge to limit the trader's losses, in the event that ADM should unexpectedly plunge during the next four and a half weeks.
But, while there was an ulterior motive behind Tuesday's major put purchase, ADM's sentiment backdrop still has distinctly skeptical overtones. The stock's 10-day ISE put/call volume ratio of 2.19 reveals that puts bought to open have more than doubled calls during the past two weeks, and this top-heavy ratio arrives in the 96th annual percentile. In other words, traders on the ISE have purchased puts over calls at a faster clip just 4% of the time during the past year....MORE