Transport Stock Attracts Option Bears as Shares Flash Sell Signal

Put buying has been popular in the past two weeks

Knight-Swift Transportation Holdings Inc (NYSE:KNX) showed up on Schaeffer's Senior Quantitative Analyst Rocky White's list of the 20 S&P MidCap 400 Index (MID) stocks that saw the most options activity in the past 10 days. Names highlighted in yellow are new to the list. KNX options traders picked up more puts than calls in the past two weeks -- andsome of those new option bears could profit soon, if recent history is any guide.

Knight-Swift Transportation saw nearly 24,000 puts cross the tape in the past 10 sessions, compared to just under 20,000 calls. It's no surprise, then, to find that across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders bought to open 2.77 KNX puts for every call in the same time frame. This 10-day put/call volume ratio sits in the 89th percentile of its annual range, pointing to a healthier-than-usual appetite for bearish bets of late.

Some of those bears may have emerged before the company's turn in the earnings confessional on Jan. 29. The shares of KNX moved higher after earnings, but subsequently peaked at $33.42 on Jan. 30, before pulling back.

Nevertheless, the equity is back within one standard deviation of its 160-day moving average, after a lengthy stretch below this trendline. There have been three similar run-ups in as many years for KNX, per data from Schaeffer's Senior Quantitative Analyst Rocky White. After these signals, the stock was lower one month later each time, averaging a steep loss of 17.36%. From the security's current perch at $31.91, a similar drop would put Knight-Swift shares just north of $26 -- and not too far from their Dec. 24 two-year low of $23.27.

Should the security remain in its long-term channel of lower highs and lows, short sellers could breathe a collective sigh of relief. Short interest jumped more than 12% in the past two reporting periods, and now represents a whopping one-third of KNX's total available float.

On the other hand, several analysts could be caught off-guard. Despite the transport stock's long-term struggles on the charts, 11 analysts maintain "buy" or better opinions, compared to four doling out lukewarm "hold" and not a single "sell" on the books. If KNX once again retreats in the face of its 160-day moving average, the stock could be vulnerable to analyst downgrades.