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After tagging a year-to-date low late last week, the shares of Ralph Lauren Corp (NYSE:RL - 141.63) have reclaimed some ground. In fact, it looks like some options speculators are expecting the stock to extend its rebound through the end of the week, with front-month calls crossing the tape at a rapid-fire rate.
In early afternoon action, RL has seen about 6,200 calls change hands -- more than 17 times its average midday call volume. On the flip side, fewer than 300 RL puts have been exchanged thus far.
Digging deeper, we find that nearly all of the activity has centered on the out-of-the-money July 145 call, which has seen more than 5,900 contracts traded on open interest of fewer than 500, pointing to an influx of fresh positions. Plus, almost all of the calls have crossed at the ask price, suggesting they were bought. Considering the volume-weighted average price (VWAP) for the 145-strike call is $0.42, the call buyers need RL to surmount the $145.42 level (strike plus premium paid) by Friday's close, in order to attain a profit on the play.
Even before today, though, RL's short-term options crowd was already more optimistically aligned than usual. The security's Schaeffer's put/call open interest ratio (SOIR) -- which measures options expiring within three months -- stands at 0.99, in the 31st percentile of its annual range. In other words, near-term options players have been more call-heavy just 31% of the time during the past year.
In the soon-to-expire July series of options, the deep out-of-the-money 155 strike is home to peak call open interest, with nearly 2,250 contracts in residence. However, once today's options activity shakes out, the closer-to-the-money 145 strike could assume that role.
From a broader sentiment standpoint, the options crowd isn't the only group bullishly biased toward RL. The stock boasts five "buy" or better ratings from analysts, compared to eight lukewarm "holds" and not a single "sell" suggestion. Plus, the consensus 12-month price target of $176.31 implies expected upside of 25% to RL's closing price of $141 on Friday.
As alluded to earlier, the shares of RL tagged a year-to-date low of $134.29 on Thursday, as Senate Majority Leader Harry Reid (D - Nev.) and some of his counterparts chastised the clothier for outsourcing the manufacturing of U.S. Olympic uniforms to China. "I think they should take all the uniforms, put them in a big pile and burn them," Reid said.
Since then, however, Ralph Lauren has agreed to domestically manufacture Team USA's apparel for Opening and Closing Ceremonies of the 2014 Olympic Winter Games, while the official Xinhua news agency retorted by saying the only thing that should be burned is "the hypocrisy of U.S. politics."
At last check, RL has added 0.5% to look at the $141.63 level. From a longer-term perspective, the equity is struggling to surmount its 10-week moving average, which has stifled the stock's rebound attempts since early April.