Investors Focusing On Conseco (CNC) Calls
7/28/2000 10:56:46 AM
On Thursday night, Conseco (CNC - 8-1/8) reported a second-quarter loss of $404.7 million because of big charges related to executive compensation and other items. The company's earnings rang up at a loss of $1.25 per diluted share compared to analysts' projections that CNC would earn 28 cents per share. What's more, the insurance concern revealed plans to slash about 2,000 jobs, or roughly 22 percent of its workforce. In addition, CNC shareholder Irwin L. Jacobs took out an advertisement in today's Wall Street Journal encouraging investors not to sell their CNC positions to short sellers.
Currently, the stock is down more than seven percent, dipping back below its 20-day moving average. From a long-term perspective, the shares remain well off their all-time intraday best of 58-1/8 from April 1998, losing almost 85 percent of their value since then. Throughout most of this decline, the security has been guided lower by its downtrending 10-month moving average (see the chart below).
In spite on CNC's woes, investors are focusing on the call side on this laggard. Over the past four sessions, the in-the-money August 5 and 7-1/2 calls have seen their open interest rise by 1,500 and 2,000 contracts, respectively. What's more, open interest on the out-of-the-money August 10 call has gone up by 1,100 contracts during the same time frame. By comparison, over the last four sessions, open interest on the in-the-money August 10 put has decreased by 2,900 contracts. Because of this recent call activity, Schaeffer's put/call open interest ratio (SOIR) on the security now stands at 0.78, which is lower than 96 percent of all such readings taken over the previous 12 months (see the chart below). From our contrarian stance, we believe that this increased optimism in the face on CNC's technical weakness could have bearish implications for the equity's near-term outlook. To learn more about SOIR, check out Schaeffer's Daily Sentiment.
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