Schaeffer’s Tool Box: OSI Pharmaceuticals Inc. and Leap Wireless International

The basis for today’s Tool Box filter is the Schaeffer’s put/call open interest ratio (SOIR). This ratio monitors open interest levels of puts and calls for all options with less than three months until expiration. Readings above 1.00 indicate that bearishly oriented put options are more popular among speculative options traders, while readings below 1.00 denote a more bullish slant. As such, a filter designed to find “Stocks with a low put/call ratio” will return those equities with a wealth of bullishly oriented call options. When combining this heavy-handed optimism with an underperforming stock, we have the makings of a potentially lucrative trading idea.

The key to expectational analysis is a wealth of either bullish or bearish investor sentiment that runs counter to the stock’s technical performance. OSI Pharmaceuticals Inc. (NASDAQ: OSIP) arrives at the top of today’s filter results due to its extremely low SOIR. It seems that options traders are betting that the stock’s poor performance relative to the S&P 500 Index (SPX) will be short-lived.

Our next underperforming issue should be a name familiar to regular Schaeffer’s Tool Box readers: Leap Wireless International Inc. (NASDAQ: LEAP). While LEAP falls short of OSIP in terms of bullish sentiment, investors are still betting heavily on a rally in the shares. Specifically, the stock’s SOIR is lower than 94% of those taken during the past year. Meanwhile, no analysts have doled out “sell” ratings on the shares, compared to six “buys” and nine “holds,” meaning downgrades are a possibility..

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Contacts

Schaeffer’s Investment Research
Joseph Hargett, 513-589-3800
(jhargett {at} sir-inc(.)com)