Schaeffer's Top Stock Picks for '25

2 Retail Stocks With Options at a Bargain

Abercrombie & Fitch Co. (ANF) and Five Below Inc (FIVE) options are attractively priced, historically speaking

Feb 9, 2016 at 4:51 PM
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Stocks have been off to a rough start in 2016, with crude oil slipping and tech stocks taking a beating. And while speculating on financial stocks will come at a hefty price today, we'll take a look below at two retailers -- Abercrombie & Fitch Co. (NYSE:ANF) and Five Below Inc (NASDAQ:FIVE) -- where short-term options are currently priced at a relative bargain.

ANF is down 10.6% so far in 2016, but seems to have found a foothold in the $24 region -- home to its 20-week moving average. And while the stock closed down 2% at $24.13 today, it has outperformed the S&P 500 Index (SPX) by nearly 30 percentage points over the past three months.

Despite this relatively strong technical performance, plenty of buying power remains on the sidelines. The stock's short interest ratio amounts to nearly eight days' worth of trading, at ANF's average volume. And analysts haven't been giving the security much positive attention lately, with 13 out of 19 sitting on "hold" or worse ratings.

Option traders have also been near a pessimistic extreme of late. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly nine ANF puts for each call during the last 10 sessions -- resulting in a ratio higher than 98% of all readings in the past year. And unwinding of any of this bearish attention could get the shares moving higher.

What's more, the stock's near-term options look attractive, from a historical standpoint. Abercrombie & Fitch Co.'s (NYSE:ANF) Schaeffer's Volatility Index (SVI) of 50% is in just the 22nd percentile of its annual range, meaning the options market is pricing in relatively low volatility expectations.

Meanwhile, FIVE settled 0.3% higher at $32.55, bringing its year-to-date lead to 1.4%. The shares have been fighting back since hitting a three-year low in November, and are flirting with support atop their 80-day moving average.

Seven of 12 analysts now call the stock a "buy" or better, without a "sell" on the books. However, short interest is still elevated, accounting for 27% of FIVE's available float, or six days' worth of trading, at the security's typical daily pace.

Option traders maintain a bearish attitude, too, with the stock's 10-day put/call volume ratio at the ISE, CBOE, and PHLX coming in at 2.67 -- in the 87th percentile of its annual range. As alluded to earlier, FIVE's near-term contracts could be a bargain. Five Below Inc (NASDAQ:FIVE) has an SVI of 43% -- lower than three-fourths of all readings from the last 12 months.
 
 

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