Stocks quoted in this article:
Call players scrambled to place their pre-earnings bets on Tiffany & Co. (NYSE:TIF - 69.28) yesterday. By the time the closing bell rang, roughly 13,000 contracts had changed hands, or almost eight times the average daily volume for call options. One group of speculators forecast a solid quarterly showing, and picked up the stock's 3/22 71.50-strike call. Nearly all of the 1,001 contracts traded here crossed at the ask price, implied volatility jumped 33.1 percentage points, and open interest added 956 positions overnight, pointing to buy-to-open activity.
The out-of-the-money calls were purchased for a volume-weighted average price (VWAP) of $1.23. In other words, traders will begin to reap a reward with each step north of $72.73 (strike price plus the VWAP) TIF takes through tonight's close -- when the options expire. Despite today's earnings-related pop, delta for the call is currently perched at 0.07, meaning the options market is giving the position a mere 7% chance of landing in the money by the end of today's session.
From a wider sentiment standpoint, option traders have been accumulating puts with some rapidity in recent weeks. During the course of the past 10 sessions, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 6,365 puts, compared to 3,937 calls. The resultant put/call volume ratio of 1.62 ranks higher than 71% of other such readings taken in the last year, pointing to a healthier-than-usual appetite for long puts of late.
On the charts, TIF has put up a solid 21% year-to-date gain. Additionally, the equity has outperformed the broader S&P 500 Index (SPX) by more than 7 percentage points over the past three months. This positive price action is continuing in today's session, with the stock up around 2% following today's quarterly earnings announcement. For TIF's fourth quarter, the company recorded a profit of $1.40 per share, beating analysts' estimates for earnings of $1.35 per share. Revenue, meanwhile, fell just shy of Wall Street's forecast ($1.24 billion vs. $1.25 billion).
At last check, TIF was hovering around $69.28. Should the stock fail to topple the aforementioned strike price by the time tonight's closing bell sounds, the most yesterday's call buyers stand to lose is the initial premium paid.