Calls book passage on Diana Shipping
David Russell | email@example.com
optionMONSTER's Heat Seeker monitoring system detected the purchase of 2,800 June 11 calls in DSX, with premiums ratcheting up from $0.40 to $0.60. Volume exceeded previous open interest of 2,013 contracts, indicating that new money was put to work.
Those buyers have now locked in the price where they can own shares in the company, which hauls iron ore, grain, and coal. Given the cheapness of the calls, they stand to generate significant leverage from even a small move in the share price.
DSX is up 4.15 percent to $10.54 in afternoon trading and 45 percent so far this year. Like most other companies in its industry group, the stock fell sharply between 2008 and 2012, hammered first by the debt crisis and then tight-money policies in China.
But they've been working higher more recently as sentiment toward the global economy improves, bears cover short positions, and discounted price-to-book ratios draw value investors. (See our special report highlighting the group in late March.)
Today's gain also follows blowout results from competitor Eagle Bulk Shipping, which stunned investors with a profitable quarter while revenue crushed estimates and EBITDA more than doubled. There has also been bullish activity in oil tanker Frontline recently.
DSX follows with its own results before the opening bell next Wednesday, May 22, and today's call buyer is apparently looking for a strong report. He or she is also probably eyeing the March highs of $11 as resistance and expects a potential runaway rally if that level is broken.
Overall option volume in DSX is 9 times greater than average so far today, according to the Heat Seeker. Calls account for a bullish 86 percent of the total.
Disclosure: I own EGLE shares.