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Put Sellers Converge on Coach, Inc. (COH) Ahead of Earnings

COH sees a flurry of pre-earnings put volume

by 4/19/2013 1:41 PM
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Put players are swarming Coach, Inc. (NYSE:COH) today, as the company prepares to report fiscal third-quarter earnings ahead of Tuesday's open. Nearly 5,200 of these contracts have been exchanged so far, almost doubling the equity's expected intraday put volume. Conversely, just over 2,300 calls have traded. The soon-to-be front-month series of puts is seeing the most action, although not all of these speculators are betting bearishly on the stock.

Most active is the May 47 strike, where 1,520 puts have crossed the tape at a volume-weighted average price (VWAP) of $0.85. The majority of these contracts changed hands at the bid price, and implied volatility was last seen 1.2 percentage points higher -- indications of sell-to-open activity. In other words, traders are expecting the stock to stay north of the $47 mark through May expiration. This would render the options worthless, and allow the speculators to pocket the initial premium paid for their put sales.

From a broader sentiment perspective, however, calls have been the options of choice on COH. The equity's International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) 10-day call/put volume ratio sits at 1.55, indicating calls have easily outstripped puts during the past two weeks. This ratio ranks higher than 76% of comparable annual readings, meaning traders have been scooping up calls over puts at an accelerated clip. This heavy accumulation of bullish bets -- particularly at the May 52.50 strike, which holds open interest of nearly 12,300 contracts -- could end up translating into options-related resistance in the near term.

Elsewhere, most of the covering analysts hold Coach, Inc. in high regard. The stock sports 13 "strong buys" and three "buy" recommendations, compared to nine "holds" and zero "sell" suggestions. Even more telling, the security's average 12-month price target of $60.35 reflects expected upside of nearly 18% from its current price of $51.25. This leaves the door wide open for future downgrades and/or price-target cuts, which could push the shares lower.

This optimism toward COH is rather puzzling, given the stock's year-to-date loss of close to 8%, as well as its year-over-year decline of more than 31%. On the charts, the equity is poised to finish another week below its 20-week moving average, which has served as a ceiling since mid-January.

As previously noted, the fine accessories designer will take its turn in the earnings confessional early next week. Analysts are currently expecting a profit of 81 cents per share. Should COH report an earnings miss, it could spell trouble for today's put sellers.


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