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Men's Wearhouse Put Players Converge as Earnings Loom

Can MW keep its head above the $34 mark?

by 6/4/2012 2:33 PM
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Bearish options players have made a beeline for The Men's Wearhouse (MW - 34.79) today, as more than 2,100 puts have crossed the tape, which is 14 times the equity's expected intraday volume. These traders seem to be favoring MW's near-the-money July 34 strike, where north of 1,900 puts have changed hands. The majority of them were exchanged at the ask price, and implied volatility was last seen 6.1% higher, pointing to buyer-driven activity. Meanwhile, this strike is home to open interest of just three contracts, which also underscores our theory that new positions are being added. In order for traders to collect a profit from these bought-to-open puts, the stock must retreat beneath $34 by back-month expiration.

This pessimistic attitude among the options crowd is nothing new for the men's apparel retailer. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 50-day put/call volume ratio of 3.41 for MW, indicating that puts bought-to-open have outpaced calls by a margin of three to one during the past few months. This ratio sits just six percentage points below a yearly peak, meaning that traders have been snapping up bearish bets over bullish at a near annual-high clip.

What's more, MW sports a Schaeffer's put/call open interest ratio (SOIR) of 2.15, conveying that puts more than double calls among options slated to expire in the next three months. This ratio arrives in the 90th percentile of its annual range, signaling that short-term options players have been showing a healthier-than-usual appetite for puts over calls.

However, most of the analysts covering the specialty retail store maintain a much more positive outlook toward MW. Currently, the stock boasts six "strong buy" endorsements, compared to just one tepid "hold" and zero "sell" recommendations.

Technically speaking, MW has advanced by more than 8% on a year-over-year basis, but has lagged the broader S&P 500 Index (SPX) by over 5% during the past three months. On the charts, the stock continues to trade below its 10-week moving average, which has served as resistance since early April.

It should also be noted that MW is due to step up to the earnings plate after Wednesday's close, and has surpassed analysts' bottom-line projections in three of the past four quarters. At last check, the equity is up 0.7% to trade at $34.79.


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