Five Below Inc (FIVE) Option Bears Not Buying the Bounce

Retailer Five Below Inc (FIVE) rallied on positive earnings, but put options remain active today

Dec 4, 2015 at 12:06 PM
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Retailer Five Below Inc (NASDAQ:FIVE) has been having a rough year on the charts, surrendering more than 29% of its value so far in 2015, and hitting a three-year low of $26.95 last month. Today, however, the stock is trading 2.6% higher at $28.64, thanks to some positive earnings news after last night's closing bell. FIVE's third-quarter earnings and revenue beat Wall Street expectations, and the company raised the lower end of its full-year revenue guidance, while narrowing its earnings outlook.

Today's action in FIVE is far tamer than what options traders were expecting. The stock's front-month at-the-money straddle was pricing in a 15.1% move, while FIVE has averaged a more modest one-day post-earnings move of 7.7% over the past eight quarters.

Deutsche Bank and RBC both modestly increased their price targets on FIVE, to $31 and $42, respectively. The 12-month consensus price target of $39.71 sits at a 38.6% premium to today's price, but analysts are split in their outlook -- of the 12 brokerages providing coverage on the stock, half give "buy" ratings or better, while the other half maintain lukewarm "holds."

Traders have been increasing their bearish bets on FIVE lately. Short interest on the security 40.8increased by more than 11% over the last two-week reporting period, and now accounts for 20.8% of the stock's total available float. At average trading volumes, it would take more than 14 days to buy back all those shares.

Meanwhile, today's action shows a strong preference for puts. In fact, puts are crossing the tape at 14 times the average intraday rate, with today's put volume on pace to set a new 52-week high, according to Trade-Alert.

The most active option is currently the January 2016 30-strike put, where 3,500 contracts have already been traded. Most of these puts have traded near the ask price, volume is easily exceeding open interest of 143 contracts, and International Securities Exchange (ISE) data confirms some buy-to-open activity. In other words, while a few shorts may have been spooked by today's post-earnings gains, some traders are expecting Five Below Inc (FIVE) to back down quickly from today's challenge of the $30 level.


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