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Elizabeth Arden, Inc. (RDEN) Call Buyers Refuse to Quit

Elizabeth Arden, Inc. traders expect the shares to topple $30 in the coming weeks

by 5/30/2014 3:00 PM
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Bullish speculation on Elizabeth Arden, Inc. (NASDAQ:RDEN) has been on the rise since the beauty products giant announced it would be evaluating strategic options, following a lackluster fiscal third-quarter earnings report. Specifically, since May 12 -- when the aforementioned announcement transpired -- the stock's International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio has increased from 0.16 to 24.57 at present. In other words, nearly 25 calls have been bought to open for each put during the past two weeks.

Things are no different today. In fact, over 4,000 RDEN calls are on the tape this afternoon, compared to just 164 puts. Plus, the stock's 30-day at-the-money implied volatility (IV) has soared by 46.6% to 67.8% -- and earlier touched a 52-week acme -- conveying strong demand for front-month contracts.

Garnering the most attention is Elizabeth Arden's June 30 call, which has seen more than 2,500 contracts cross the tape -- 87% at the ask price, implying they were bought. In addition, IV has spiked, and volume outstrips open interest, making it safe to assume the contracts are being freshly minted -- a theory confirmed by data from the ISE.

The expectation among call buyers is that the shares -- 2.7% higher this afternoon at $27.01 -- will topple the 30 strike by front-month options expiration, at the close on Friday, June 20. More specifically, the traders need Elizabeth Arden, Inc. (NASDAQ:RDEN) shares to finish above $30.59 (strike plus volume-weighted average price of $0.59), with theoretically unlimited gains north of breakeven. However, if the contracts remain out of the money at expiration, three weeks from today, the speculators risk parting with the initial cash outlay.

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