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Put players have continued to pummel smartphone maker Palm, Inc. PALM yesterday, with intraday volume almost doubling the norm. Shortly after midday, the equity has already seen roughly 13,000 puts change hands, surpassing its expected daily volume of fewer than 7,200 contracts.

The at-the-money March 9 strike has taken the brunt of the beating, with about 7,250 puts exchanged. So far, 80% of the newly front-month puts have traded closer to the ask price, and implied volatility has already jumped more than 8%, pointing to a healthy amount of buyer-initiated activity. By purchasing the March 9 put to open, the buyer is betting the shares of PALM finish beneath the $9 level by options expiration on Friday, March 19.

The preference for pessimistic positions reflects the sentiment among short-term options speculators. This reading not only implies that puts outnumber calls among options slated to expire within three months, but also tells us that near-term traders have been more skeptically skewed toward PALM.

In addition, short interest on the equity has also more than doubled since June 2009, advancing roughly 17.5% during just the past month. Now, almost 73.4 million PALM shares are dedicated to short interest. In fact, at the stock’s average daily trading volume, it would take almost six and a half sessions for all of these bearish bets to unwind. The stock has surrendered roughly 30% since grazing the $13.40 level in mid-January, guided into the red by unrelenting resistance at its 18-day moving average.

Technicals is testing a support in the $9 neighborhood. This region played the part of resistance from early 2007 into March 2009, and could act as a technical backstop for the descending stock. Should PALM rebound off the $9 level and, ultimately, a breach off its 18-day moving average IT could point to an appealing entry price for potential buyers still harboring bullish hopes for the smartphone concern.

My analysis: long term bearish sentiment but possible near term short squeeze. We may see a possible bounce after $8.00 If it breaks below this level all support is broken and will fall further to the $6.00 level. Expect to see a short covering if this mark is reached. This will be a short term quick gain (+10%) at the expense of the shorts!!! Keep this on your radar.

ACE

Tags: communications, mobile, PALM, smartphones

This entry was posted on Tuesday, February 23rd, 2010 at 5:04 am and is filed under Contributors, Large Cap Stocks, Technical Stocks. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.