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Saks Skeptics Scoop Up Bearish Options

SKS traders are targeting long-term puts

by 12/26/2012 12:22 PM
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Retailer Saks Inc (NYSE:SKS - 10.30) is swimming in red ink this afternoon, and it looks like the options crowd is anticipating even more downside for the shares. Already today, SKS has seen roughly 4,500 puts cross the tape -- about seven times its average midday put volume. For comparison, fewer than 200 SKS calls have changed hands thus far.

Almost all of the action has transpired at the May 11 put, which has seen more than 3,700 contracts exchanged. The majority of the puts traded at the ask price, and implied volatility was last seen 2.7 percentage points higher, hinting at buy-to-open activity.

By purchasing the puts to open, the buyers are expecting SKS to extend its retreat over the next several months. More specifically, the volume-weighted average price of the in-the-money puts is $1.59, meaning the buyers will profit if SKS breaches the $9.41 level (strike minus average premium paid) by May options expiration. However, even if SKS remains in double-digit territory, the most the traders can lose is the initial premium paid.

From a broader sentiment standpoint, today's affinity for puts is nothing new for SKS -- among short-term traders, at least. The equity's Schaeffer's put/call open interest ratio (SOIR) currently sits at 2.57, indicating that puts more than double calls among options expiring within three months. Plus, this ratio registers in the 77th percentile of its annual range, suggesting near-term options players are more put-biased than usual right now.

At last check, the shares of SKS have given up 2.9% to explore the $10.30 region. The stock is now on pace to end south of its 50-day moving average for the first time in a month.

According to the MasterCard Advisors Spending Pulse report, holiday sales growth among U.S. retailers was the weakest since 2008, increasing just 0.7% in the two months prior to Christmas. Analysts, on average, anticipated growth of 3% to 4%.


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