The market gave up some of its gains after two days of a strong rally. The S&P led the decline with an 0.76% loss, followed by the Dow Jones' 0.74% drop. The NASDAQ managed to turn positive intra-day but still gave up 0.33% at closing. All three major indices still closed above their 50-day MA, whereas [[DIA]] and SPY failed to break through their R1 resistance points of $133.45 and $145.68, respectively. The healthcare sector led the with an 0.83% loss and the consumer cyclical sector stood out with a 1.05% gain.
For the NYSE, 1,510 stocks advanced, 1,533 declined, and 122 stayed neutral. For NASDAQ, 1,235 stocks advanced, 1,211 declined, and 126 stayed unchanged. Two interesting stocks with unusual put activities on Wednesday had been identified and will be presented for investors to research further. The following two stocks have the daily put volume ratio above 5.00 (5x of the average put volume) with a put volume above 7,000.
Average Put Volume
Daily Volume Ratio
Corrections Corp of America (CXW)
Reynolds American, Inc. (RAI)
Source: Schaeffer's Research
Corrections Corp of America
CXW owns and operates privatized correctional and detention facilities and prison operators in the United States. CXW operates over 60 facilities and owns more than 40, holding a capacity of nearly 85,000 beds.
CXW currently has an enterprise value of $4.60B and a market cap of $3.54B. The Trailing P/E is 23.43, ttm, and the Forward P/E is 21.86 with PEG ratio (5 year expected) of 2.44. The company has a total cash of 59.24M, most recent quarter [mrq], and an operating cash flow of 316.13M with the levered free cash flow of 121.38M, ttm.
CXW closed at $35.42 with an 0.43% gain on Wednesday. The volume of 565.93K was 35.32% less than the 30 day average volume of 874.97K. CWX had been trading in the range of $20.16 - $36.54 in the past 52 weeks. CWX has a beta of 0.97. CWX was currently trading above its 50-day MA of $33.88 and was testing its R1 resistance point at $35.64. The MACD (12, 26, 9) was showing a bullish sign, but the MACD difference continued to converge. RSI (14) was showing a bullish lean at 59.97, as seen from the chart below.
Unusual Options Trading Activities for CXW
The most active put was the March 15, 2013 put at the strike price of $28.00 with a volume of 7,400 and an open interest of 13,576. The implied volatility is 40.3, and the chance of breakeven is 12.30. It is interesting to note that two other calls also had a similar, unusual volume of 7,400. The December 21, 2012 call at the strike price of $31.00 and the June. 21, 2013 call at the strike price of $34.00 both had a volume of 7,400 with an open interest of 8,188 and 742, respectively.
Based on these unusual volumes, if these contracts were opened by one single trader, then it could be a bearish bet setup by shorting December 21, 2013 call at $31 strike and buying June 21, 2013 call at $34 strike to fund the cost for March 15, 2013 put. However, it is pure speculation from the writer as we could not find the supporting evidence and transaction details. The historical volatility for CXW is 22.37 for 1 month, 21.67 for 3 months, and 24.61 for 1 year. Investors can put CXW on the watch list and see how it plays out.
Reynolds American, Inc.
RAI controls roughly 28% of the U.S. cigarette market and is the second-largest domestic cigarette manufacture behind Altria (MO). As reported, the company announced that its board of directors declared a quarterly cash dividend on the company’s common stock of $0.59 per share ($2.36 per share annualized). The dividend will be payable on Jan. 2, 2013, to shareholders of record on Dec. 10, 2012..
RAI has an enterprise value of $26.06B and has a market cap of $23.50B. The Trailing P/E is 16.84, ttm, and the Forward P/E is 13.47 for RAI. RAI has a PEG ratio of 2.12 (5 year expected). RAI currently has a total cash of $1.24B, mrq, with an operating cash flow of $1.49B, ttm, whereas the levered free cash flow is $1.60B, ttm.
RAI closed at $42.04 with 0.24% gain on Wednesday. The volume of 4.04M was 78.76% more than the 30 day average volume of 2.26M. RAI had been trading in the range of $38.95-$46.93 in the past 52 weeks. RAI has a beta of 0.61. RAI was approaching its 50-day MA of $41.82 and 200-day MA of $41.91. If RAI cannot hold these two major support levels, a bearish trend could be expected. The MACD (12, 26, 9) had been showing a bearish sign since December 17 and the MACD difference continued to diverge. RSI (14) was showing a bearish lean at 45.83, as seen from the chart below.
The most active put was December 21, 2012 put at the strike price of $42.00 with a volume of 5,489 and an open interest of 3,705. The implied volatility is 21.0, and the chance of breakeven is 33.86. The historical volatility for RAI is 13.87 for 1 month, 16.84 for 3 months, and 15.04 for 1 year. If RAI cannot hold its major support levels, bearish put options can be set up to ride the downside trend.
Note: All numbers/prices are quoted from the closing of December 19, 2012 with the data provided from Barron's, MorningStar, Schaeffer's Investment Research, Inc., Google Finance, and Yahoo Finance. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.