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Is Staples Due for Another Post-Earnings Nosedive?

Puts have become the options of choice on SPLS in recent weeks

by 8/1/2012 11:50:26 AM
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Options traders are taking a bearish tack with office-supply chain Staples, Inc. (NASDAQ:SPLS - 12.75). During the past five sessions, speculators on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have bought to open 10,551 puts on SPLS, along with just 882 calls. In other words, traders have scooped up nearly a dozen times more bearish bets than bullish over the course of the last week.

In fact, SPLS now sports a 10-day put/call volume ratio of 4.40, based on cumulative buy-to-open volume data from the ISE, CBOE, and NASDAQ OMX PHLX (PHLX). This ratio ranks higher than 99% of comparable readings taken during the previous year, marking a near-peak of pessimistically slanted speculation.

Likewise, the stock's 50-day ISE/CBOE/PHLX put/call volume ratio weighs in at 1.58, in the 99th annual percentile. So, it seems safe to say that options players have rarely shown a greater appetite for SPLS puts over calls during the previous 52 weeks.

Zeroing in on near-term activity, the security's Schaeffer's put/call open interest ratio (SOIR) stands at 1.21, with puts narrowly outnumbering calls among options set to expire within three months. This SOIR ranks in the 92nd percentile of its annual range, confirming a heavy-handed bearish bias among speculative investors.

In the August series, put players have concentrated their efforts at the 12 strike. This near-the-money option is home to peak put open interest of 12,073 contracts. Meanwhile, another significant accumulation of 9,735 contracts can be found at the August 13 put. Most of the open interest at these strikes was buyer-initiated, so traders appear to be looking for SPLS to tumble through the next couple of weeks until expiration.

Short sellers have also piled on, with the number of SPLS shares sold short rising by 2.3% during the past two reporting periods. Short interest now accounts for 7.5% of the equity's float, with this healthy accumulation representing 6.5 times its average daily trading volume.

Bears could be looking ahead to the retailer's second-quarter earnings release, with SPLS due to unveil its results before the market opens on Wednesday, Aug. 15. Analysts are looking for a profit of 22 cents per share, flat with the company's year-ago performance. SPLS has matched or surpassed consensus profit estimates in each of the past four quarters -- but the stock gapped drastically lower after its mid-May earnings event, thanks to a top-line miss. The recent crop of skeptics may be anticipating another post-earnings pullback on the horizon.

Of course, traders could also simply be expecting a continuation of the longer-term decline in SPLS. The shares have shed more than 8% of their value so far in 2012, and they're currently pinned below resistance at their 50-day moving average. Given this lackluster price action -- as well as that recent post-earnings plunge -- it's not too surprising to find so much negative sentiment surrounding SPLS at the moment.

Daily Chart of SPLS since February 2012 With 50-Day Moving Average

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