Polaris (PII) traded 4,675 puts on the day, more than 20X the daily put volume. The action was in September where the September $95/$85 ratio put spread traded 1,500X3,000 contracts at $0.17, a small debit for a bet on a slide in shares, and also a bearish bet on volatility as the spread will become profitable if shares fail to make new highs and trend sideways the next few months, a positive Theta and negative Vega trade structure. The trade is profitable in the $75.15 to $94.85 range, shares currently at $103.43. Maximum Profits are made if shares end at $85 on September expiration, where each $17 spread would be worth $983, a massive percentage gain.
Looking at the chart you can see shares gapped up last quarter on earnings from $92.50 resistance all the way to $105, and clear gap support at $102.50. A slow gap fill move back towards $92.50 would make this spread work perfectly over time.
Shares of the $3.5B maker of recreational vehicles trade 15.4X forward earnings, 1.63X sales and 19.9X cash flow, fairly valued, but sales are elastic to oil prices and consumer discretionary spending. There is a 10.1% short float, 7.2 days to cover.
Wells Fargo recently raised 2012 earnings estimates to $7, and a P/E of 15, its historical average would put shares at $95, so one could argue shares are over-valued. Shares are trading at 5 year highs on Price/Sales and Price/Earnings. However, earnings growth and margins are also making 5 year highs. RW Baird cut shares to Neutral from Outperform, but raised its target to $125 from $90 recently, which seems unusual as a stock with 20% upside is generally at least an Outperform.
Disclosure: No Current Position, Set Alerts for $102.50 Breakdown
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