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Express Stock Destined For Another Earnings Bloodbath?

Options traders have been buying to open Express, Inc. (EXPR) calls in recent weeks

Mar 7, 2017 at 12:13 PM
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If past is precedent, Express, Inc. (NYSE:EXPR) will feel the pain tomorrow. The retailer reports earnings before the open, and following four of its past five reports, the stock has taken a dramatic turn south. Most recently, the shares tanked 20.4% in the session subsequent to the Dec. 1 earnings release, and 25.5% in late August.

Ahead of the key event, Wall Street has been understandably bearish. Nine of 11 analysts rate EXPR a "hold" or a "strong sell." Not to mention, after a 20.8% increase in the most recent reporting period, short interest now accounts for one-tenth of the stock's total float. It would take over a week for short sellers to cover their positions, at EXPR's average daily trading rate.

Options traders are a notable exception to the bearish rule. During the last two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 3,318 EXPR calls have been bought to open, versus only 212 puts. The resultant call/put volume ratio is a top-heavy 15.65 -- in the 68th percentile of its annual range. However, with short interest elevated, it's likely some short sellers have been purchasing calls to hedge against an upside surprise.

Technically, Express, Inc. (NYSE:EXPR) has had a disastrous 12 months, echoing the experience of retail stocks more generally. Year-over-year, the shares have surrendered 43% of their value to trade at $10.89. Not to mention, a late-February breakout attempt was stymied by EXPR's 80-day moving average, suggesting substantial gains could be hard to come by, even on an earnings beat.

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