Pawn and Payday Outfits: What Options Say

Think the economic times are ripe for payday-loan companies? The options market is saying "think again," according to one analyst.

Fears are on the rise that state legislatures, alarmed by the short-term interest rates typically charged by these companies, may move to curtail the industry, Rebecca Darst of Interactive Brokers said on CNBC's "Squawk Box." Just this week Ohio made such a move.

"All the payday-loan companies, the companies that operate these sort of franchises in states around the country, they just got slammed yesterday, and I think the reason is that we're suddenly alarmed by the sort of wham-bam legislation," she said.

"Where we saw the upshot was in options activity in CashAmerica , which offers not just check-cashing and payday loans, but they also do a lot of online business ...As recently as a week ago, this company was out reporting very strong Q1 numbers, offering very bullish guidance for Q2, their shares are up 20 percent for the year to date, yesterday they tanked 10 percent, implied volatility up by more than 26 percent, at a three-month high. What this tells us is that we could see a little bit more downside." (See her full interview in here).

Other such companies, which often run pawn shops in addition to cash advance operations, include Advance America Cash , QC Holding , and EZCorp .

Disclaimer

© 2009 CNBC.com