Stryker Corporation (SYK).

In last week's edition of Trading Tools, priceline.com (PCLN) was examined, as it appeared on the Zacks Unusually High Option Volume filter. Utilizing the same screener again this week, I stumbled across medical technology mogul Stryker Corporation (SYK).

The Unusually High Option Volume Screener

The filter is somewhat self-explanatory. It looks for stocks with single-day option volume in excess of their average volume over the last month. Why is this important? Simply put, this filter allows us to gauge how options traders feel about a certain stock, and sometimes unusually heavy option activity can be the sign of an event (like earnings or merger-and-acquisition news, for instance) or, occasionally, a reversal of sentiment in the options pits.

A Rare Day in the Bears' Lair

According to the Zacks filter, SYK saw put volume of more than 800 contracts cross the tape during last Wednesday's holiday-shortened session. That's more than twice its average daily volume of fewer than 350 contracts.

However, despite Wednesday's bias for bearish bets, it seems options players have been flocking to the bullpen at full speed lately. During the past 10 days on the International Securities Exchange (ISE), SYK has seen almost 17 times as many calls than puts bought to open – an annual optimistic peak for options traders on the ISE.

Further underscoring the high hopes among the options crowd is SYK's descending Schaeffer's put/call open interest ratio (SOIR), which measures sentiment among near-term options speculators. After inching lower recently, the stock's SOIR now rests at 0.63, indicating that calls outnumber their put rivals among options slated to expire in less than 3 months.

So, with most options players on the bullish bandwagon, why the recent preference for puts?

Fundamentally Flat-lining?

The recent surge in put volume could be as a result of Stryker's recall-related news, which hit the Street early last Wednesday. More specifically, the company recalled 322 "custom cranial implant kits" used to correct facial trauma or defects, after the manufacturer determined that it couldn't ensure product sterility.

Stryker had launched a voluntary recall of the products a couple of months ago, but the Food and Drug Administration (FDA) just recently determined the potential for infection a "class 1" event (the most serious type of recall, according to the FDA), issuing public notice.

The news comes on the heels of other fundamental woes – primarily the company's latest adjustment to its 2008 sales and earnings forecast. On Dec. 19, Stryker slashed its predictions amid "significant and rapid contraction" in hospital capital budgets, which wounds the firm's product demand. The medical device maker now expects 2008 revenue growth of 9% to 10%, compared to previous guidance of 11% to 12%. It also predicts fourth-quarter earnings (excluding items) of $2.82 to $2.84 per share, down from $2.88 per share it projected in October.

Checking Out the Charts

Technically speaking, since breaching long-term resistance in the 60-to-62 region in October, the shares of SYK have tumbled roughly 33%. In fact, the stock has underperformed the S&P 500 Index (SPX) by more than 15% during the past 40 trading sessions, and is poised to close 2008 on a year-to-date loss of 46%.

The equity is now attempting to find a key foothold in the 38-to-40 neighborhood, which played the part of support through 2004 – 2006. A monthly close beneath this area would place the shares in territory not explored since September 2003.

Regardless of the stock's recent fall from grace on the charts, an ample amount of optimism continues to surround SYK. The underperformer still harbors an impressive 10 "strong buys" and 1 "buy" rating, according to Zacks, compared to an equal number of "holds" and no "sell" ratings.

The Bottom Line

Overall, traders will want to keep an eye on the 40 neighborhood; once a form of long-term support, the equity is now attempting to find a familiar foothold here. A monthly close beneath this region could signal additional technical weakness for the shares.

Should the stock resume its quest for new lows, the bulls could abandon ship. An unwinding of optimism – whether in the options arena, or via downgrades and/or price-target cuts – could spark a fresh wave of selling pressure on the struggling security.

Read the full analyst report on PCLN

Read the full analyst report on SYK