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Option Idea of the Week: Tiffany & Co. (TIF)

TIF shines bright on the charts, yet sentiment on the Street is tarnished

by 8/9/2013 11:31 AM
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Tiffany & Co. (NYSE:TIF) has performed solidly in 2013, advancing more than 41% year-to-date, and outpacing the broader S&P 500 Index (SPX) on a relative-strength basis during the most recent three-month time frame. What's more, the security tagged a fresh two-year high of $81.78 on Aug. 2. On the charts, the stock's June pullback was cushioned by its 20-week moving average, which effectively has served as a floor since mid-January. Against this technical backdrop -- and in light of some lingering skepticism from the Street -- now could be an opportune time to wager on extended gains for the fine jewelry maven.

Weekly Chart of TIF since December 2012 With 20-Week Moving Average

Examining the equity from a sentiment standpoint, near-term traders have been pessimistically skewed toward TIF lately. In fact, the stock's Schaeffer's put/call open interest ratio (SOIR) checks in at 2.20, confirming puts more than double calls among options scheduled to expire within the next three months. This ratio registers in the 92nd percentile of its annual range, signaling short-term speculators have been more put-focused toward the security just 8% of the time during the past 12 months. This heavy accumulation of put open interest -- especially at the underfoot August 80 strike -- could end up translating into options-related support in the near future.

Elsewhere, although short interest on TIF fell by 12.9% during the most recent reporting period, nearly four million shares are still sold short. It would take almost three-and-a-half sessions to unwind these bearish bets, at the equity's average daily trading volume. This healthy amount of sideline cash is enough to spark a modest short-covering rally, should the stock continue along its northbound path.

Also of note, sentiment among the brokerage bunch isn't particularly enthusiastic toward TIF as a whole, despite HSBC lifting its price target for the security to $97 from $82 yesterday. The stock maintains just six "buy" or better ratings, compared to 11 tepid "holds" and one "strong sell" suggestion. Meanwhile, the equity's average 12-month price target of $81.55 reflects a premium of just 0.8% to its present price at $80.91. This leaves the door wide open for a wave of upgrades and/or further price-target hikes, which could send the shares even higher.

Options players hoping to wager on further upside for Tiffany & Co. (NYSE:TIF) may want to consider purchasing the security's in-the-money November 75-strike calls, which are asked at $7.90. However, those traders wanting to tread lightly on account of the firm's upcoming Aug. 27 earnings report may wish to employ a bull call spread by simultaneously selling the November 87.50-strike calls, which are bid at $1.64.


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