Speculative players appear to be growing more bearish on retailers Target Corporation (NYSE:TGT), Abercrombie & Fitch Co. (NYSE:ANF), and Under Armour Inc (NYSE:UA), according to data from the major options exchanges. Traders are buying to open puts on TGT and ANF ahead of earnings, and are purchasing UA puts despite the stock's longer-term uptrend. Here's a closer look at recent option activity on these three securities.
Target Corporation (NYSE:TGT)
During the past five days, options traders on the Chicago Board Options Exchange (CBOE) have bought to open more than 6,000 puts on TGT, compared to fewer than 350 calls -- resulting in a put/call volume ratio of 18.13.
Broadening that to include data from the International Securities Exchange (ISE) and NASDAQ OMX PHLX (PHLX), TGT has racked up a 10-day put/call volume ratio of 5.99. This ratio stands just 18 percentage points from a 12-month peak, confirming that option buyers are picking up TGT puts over calls at a much faster-than-usual clip ahead of tomorrow morning's turn in the earnings confessional.
Reflecting the escalating pre-earnings demand, TGT's Schaeffer's Volatility Index (SVI) has ascended to 19% from just 15% two weeks ago. Compared to similar readings of the past year, the current SVI ranks in the 45th percentile, suggesting TGT's short-term options are becoming pricier, historically speaking.
Technically speaking, TGT has added 15% in 2013, and has gained roughly 50% since its August 2011 low. Considering the stock's long-term ascent, it's possible that the growing affinity for puts -- especially those of the out-of-the-money variety -- consists of portfolio protection. After touching an all-time high of $73.50 in late July, however, the equity has pulled back to its 32-week moving average, and now sits at $68.17. As such, the security's Relative Strength Index (RSI) stands at 32 -- near oversold territory, suggesting a rebound could be in the cards. .
Fundamentally, Target has bested the Street's per-share profit projections in four of the past six quarters. In fact, the stock averages a gain of 2.7% in the week following its reports. This go-round, analysts, on average, are expecting a per-share profit of 96 cents for TGT.
Abercrombie & Fitch Co. (NYSE:ANF)
ANF is slated to step up to the earnings plate before the opening bell on Thursday, Aug. 22. During the past five sessions, the retailer has seen 2,282 puts change hands on the CBOE, compared to fewer than 500 calls, resulting in a lopsided put/call ratio of 4.66.
Likewise, the stock sports a 10-day ISE/CBOE/PHLX put/call volume ratio of 2.75, indicating that traders have bought to open nearly three puts for every call during the past two weeks on the major options exchanges. This ratio sits 3 percentage points from a 52-week peak, pointing to a healthier-than-usual appetite for long puts of late.
Echoing that, ANF's Schaeffer's put/call open interest ratio (SOIR) of 0.99 rests just 9 percentage points from an annual high. In simpler terms, near-term option traders have rarely been more put-biased during the past year.
As with TGT, pre-earnings demand has rendered ANF's short-term options more expensive. The equity's SVI has jumped from 37% to 50% in two weeks, and now stands in the 41st percentile of its annual range.
Unlike TGT, ANF has struggled to stay north of breakeven in 2013. The stock was last seen at $48.41, and is looking up at its 80-month moving average -- a trendline that hasn't been toppled on a monthly closing basis since October 2011.
Off the charts, ANF has matched or topped the Street's bottom-line earnings forecast in five of the past six quarters, averaging a gain of 4.5% in the week after its report. Analysts are calling for a per-share profit of 28 cents for ANF's recently concluded quarter.
Under Armour Inc (NYSE:UA)
Finally, UA has advanced more than 46% so far this year, and tagged a record high of $74.45 just last week. Since then, the stock has backpedaled to test its 20-day moving average -- above which the stock has traded since late June -- and was last seen at $70.83.
Despite UA's technical prowess, option traders on the ISE have bought to open 1,424 puts and just 108 calls during the past five days, resulting in a put/call ratio of 13.19. In similar fashion, UA has racked up a 10-day ISE/CBOE/PHLX put/call volume ratio of 2.14 -- just 8 percentage points shy of a 12-month acme.
The stock's SOIR of 1.75 also reflects a wider-than-usual preference for puts. Compared to similar readings of the past year, this ratio ranks in the 92nd percentile, suggesting near-term option players have rarely favored UA puts over calls by a wider margin.
In the September series of options, the out-of-the-money 62.50-, 65-, and 67.50-strike puts have been most popular, with roughly 3,000 contracts added to each strike during the past two weeks. Against this backdrop, it's possible that UA shareholders are purchasing out-of-the-money puts as options "insurance," rather than to bet on a significant downturn in the short term.
Elsewhere on Wall Street, the tone is more decisively bearish. Short interest accounts for 12.5% of UA's total available float, representing more than six days worth of pent-up buying demand, at UA's average pace of trading. Plus, 16 out of 26 analysts maintain "hold" or worse ratings on the outperforming stock.
Should UA resume its quest for new highs, a short-squeeze situation or a round of upgrades could add contrarian fuel to the equity's fire.
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