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Barnes & Noble Bears Increase Exposure Ahead of Earnings

BKS' shaky fundamentals put near-term option players on edge

by 8/15/2012 1:53 PM
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Option volume has accelerated on Barnes & Noble, Inc. (NYSE:BKS - 12.60) in today's session, with calls and puts trading at 1.8 times and four times their respective average daily volumes. By the numbers, around 960 call contracts have crossed the tape, compared to approximately 2,900 put contracts.

Speculators are making their short-term bearish case for BKS, with the September 12-strike put emerging as the day's most popular contract. Nearly all of the 2,120 contracts traded at this strike have so far crossed the tape at the ask price. With open interest currently checking in at a mere 805, it's safe to assume that new pessimistic positions are being opened here.

By buying the puts to open, these option traders are expecting BKS to fall below $11.12 (the strike minus the volume-weighted average price (VWAP) of $0.88) over the next five weeks -- representing a 12% slide from the equity's current perch.

Today's preference for short-term puts is reflective of a current trend among BKS speculators, with the stock sporting a Schaeffer's put/call open interest ratio (SOIR) of 1.24. What's more, this ratio ranks in the 73rd percentile of its annual range, suggesting near-term traders are more put-heavy than usual toward the security.

However, there could be a few things that are driving today's excessive level of put volume. For starters, BKS began its day with a bearish note from Stifel Nicolaus, with the brokerage firm citing an ever-increasing market presence within the e-book industry as the catalyst. Additionally, the bookseller is scheduled to take its turn at the earnings plate next Tuesday, Aug. 21. Barnes & Noble has failed to meet per-share earnings expectations in each of its last four quarters. Wall Street is presently expecting a loss of $1 per share for the company's fiscal first quarter.

It could also be BKS' dismal technical backdrop stoking the skeptical mood. Stifel's dreary outlook has prompted a sell-off in today's session, with the shares adding roughly 5% to their 8.1% year-to-date deficit. Plus, during the course of the past 60 trading sessions, the stock has lagged the broader S&P 500 Index (SPX) by more than 27 percentage points.

To the pleasure of the previously mentioned put players, additional analyst-related troubles could be in store for the equity. Two of the three covering analysts still maintain a "strong buy" toward BKS. Also, the consensus 12-month price target of $20.75 represents a brazen 65% premium to the stock's current price. Should the company's impending quarterly results once again fall short of the Street's view, another round of downgrades and/or price-target cuts could exacerbate BKS' technical troubles.


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