Earnings Preview: Foot Locker, Inc. (FL)

Foot Locker, Inc.'s (FL) option pits popped off ahead of tomorrow's earnings release

by Celeste Taylor

Published on Aug 18, 2016 at 4:55 PM
Updated on Aug 18, 2016 at 4:58 PM

Retailer Foot Locker, Inc. (NYSE:FL) is set to report earnings tomorrow morning, and the stock rallied 2.1% to end the day at $61.68. Action in the option pits picked up as investors speculate as to whether the footwear specialist can hop on the retail rally bandwagon, or if it'll be another day of post-earnings disappointment.

FL has managed to rebound 21% since touching an annual low of $50.90 in late June, but is currently down 16.9% year-over-year. Plus, FL appears to be running into a wall at its 10-month moving average, which has contained all but one of the shares' monthly closes since October. Furthermore, FL's 10- and 20-month moving averages are "bearishly crossed", with the 20-month moving average overtaking the 10-month moving average in July. This kind of signal is usually indicative of a deep-seated technical weakness.

FL monthly 081816

Action in FL's option pits popped off, as contracts crossed the line at five times their usual daily volume. Puts in particular were popular, crossing at 13 times their usual clip, but the spotlight was on FL's August 65 call, which saw a substantial amount of sell-to-open action, per data from the International Securities Exchange (ISE). These option sellers are betting on a short-term ceiling at $65 for the retailer. 

Bullish sentiment has been growing among option buyers, with FL's 50-day call/put volume ratio at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 3.24 sitting higher than 93% of all other readings from the past 12 months. Foot Locker, Inc. also has a Schaeffer's put/call open interest ratio (SOIR) of 0.54, which sits lower than 72% of all other readings from the past year, indicating a larger-than-usual preference for calls over puts among near-term traders. Total call open interest is currently in the 91st percentile of its annual range, and nearly doubles put open interest.

Option traders aren't the only ones optimistic about FL's future. Short sellers seem to be abandoning ship, with short interest down 16% over the last two reporting periods. However, recent call-buying action could be short sellers hedging their bets. Short interest still makes up just under 9% of FL's float, and it would take traders over seven sessions to cover these shorted shares, at FL's average daily volume.

If the past is a solid indicator, Foot Locker, Inc. (NYSE:FL) fans could be disappointed, given that the stock has seen negative price action in five of its last eight post-earnings sessions, including a 6.5% drop after its most recent earnings report in May. While 12 of 16 analysts rating the stock a "strong buy," without a single "sell" to be found, a potential bevy of downgrades could exacerbate any post-earnings losses. 

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