Traders See Bear-Market Rally in Education Stocks

Corinthian Colleges has been beaten bloody on worries about student-loan restrictions, but now traders think a bear-market rally is possible.

Normal options volume for Corinthian is about 3,600 contracts a day, yet volume in the June 15 calls surged to 5,515 ahead of the long weekend, with institutional-sized trades pricing for $0.35 to $0.40. Buyers also snapped up nearly 1,400 July 15 calls for $0.70.

COCO shares fell 0.22 percent to $13.39 on Friday and are down 14 percent in the last month. The for-profit education sector took a hit from hedge-fund manager Steve Eisman, who said Wednesday that the government might cap student debt levels. That could potentially limit spending on tuition.

A month ago, Credit Suisse warned the regulatory environment might tighten on the sector. Deputy Education Undersecretary Robert Shireman also critically likened the industry to Wall Street firms during a speech in late April.

All the selling pushed short interest in the name to a whopping 37 percent of the float as of mid-May. Friday's options action suggest that now traders are looking for a short-term bounce from a stock that traded over $19 as late as April 22.


Najarian does not hold shares of COCO.

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Pete Najarian is a professional investor, CNBC contributor, regular co-host of CNBC's "Fast Money" and co-founder of OptionMonster.com.