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Option Bear Bets Against Children's Place Pre-Earnings

PLCE attracted heavy option volume ahead of Thursday's quarterly results

by 5/15/2012 11:10:07 AM
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Bearish options players have gathered around Children's Place Retail Stores, Inc. (PLCE - 45.79), per data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). During the course of the past 10 trading sessions, speculators have bought to open 2.02 puts for every call. Plus, this ratio ranks higher than 74% of other such readings taken in the past year, suggesting that puts have been scooped up over calls at a faster-than-usual pace in recent weeks.

Echoing this growing gloom and doom toward PLCE is the stock's rising Schaeffer's put/call open interest ratio (SOIR). Since May 7, the equity's SOIR has jumped to 0.65 from 0.41, as near-term put open interest swelled 113%. This ratio now ranks in the 70th percentile of its annual range, implying that short-term speculators are more put-heavy than usual toward the equity.

Options activity was accelerated on PLCE during the course of yesterday's session. Both puts and calls were flying off the shelves, trading at 13 times and five times their respective average daily volumes. Puts won the numbers game, however, with 6,088 put contracts crossing the tape, compared to 2,906 call contracts.

In Monday's put-skewed session, one trader chose to roll down his bearish bet in the front-month series of options. One block of 2,201 May 45 puts changed hands below the bid price at $1.98, while a symmetrical block of 2,201 May 42.50 puts crossed the tape for $1.08, near the ask price. The 45 strike saw a drop in open interest overnight, while open interest at the 42.50 strike increased, suggesting the higher-strike puts were closed out in favor of their lower-strike counterparts. By buying the 42.50-strike puts to open, this options player is expecting PLCE to fall below $42.50 by Friday's closing bell.

On a technical basis, PLCE has struggled in 2012, with the shares sitting on a 15% year-to-date deficit. More recently, the stock has been pressured steadily lower by its descending 10-day moving average. Despite this recent round of chart troubles, PLCE has not finished below the $42.50 mark on a daily closing basis since Sept. 9.

Daily Chart of PLCE since January 2012 with 10-Day Moving Average

At last check, the stock has tacked on 1.4% to trade near $45.79

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