Abercrombie & Fitch Options Premiums Spike Ahead of Earnings

ANF stock remains a long-term laggard

Managing Editor
Aug 23, 2017 at 3:10 PM
facebook twitter linkedin


Retailer Abercrombie & Fitch Co. (NYSE:ANF) is set to report second-quarter earnings tomorrow morning. It's been a bearish trend for the retail sector during this earnings season, though ANF rival American Eagle Outfitters (NYSE:AEO) surprised many today with an upbeat report. Abercrombie stock has historically had success in post-earnings sessions, too. Below, we will break down ANF stock's post-earnings history, and examine how options traders are trading the retailer ahead of the quarterly event.

The retailer has averaged a one-day move in either direction of 13.9% in the session following its last eight earnings releases. Furthermore, this move has been positive five of the last eight times, including a 9% pop back in May. This time around, the options market is pricing in an even bigger 18.8% swing for tomorrow's trading. 

Another post-earnings rally would be just what the doctor ordered for ANF. While the retail stock is currently up 5.2% to trade at $9.63 on AEO-inspired tailwinds, it's still down 20% year-to-date. Plus, the shares have faced increased pressure from their 30-day moving average since a July 10 bear gap brought on by abandoned buyout talks, and hit a 17-year low of $8.81 on July 12.

Looking at the options pits, short-term options traders are more call-skewed than usual toward the stock. This is evidenced by the ANF's Schaeffer's put/call open interest ratio (SOIR) of 0.63, which is just 1 percentage point from a 12-month low.

Drilling down, peak open interest of 6,928 contracts is found at the September 10 call, and data points to a mix of buy- and sell-to-open activity here in recent months. Those buying the calls expect a breakout into double-digit territory by options expiration at the close on Friday, Sept. 15, while those writing the calls expect $10 to serve as a ceiling for the shares.

Regardless, now appears to be a more attractive time to sell premium on short-term ANF options, as opposed to buy it. Ahead of earnings, the stock's 30-day at-the-money implied volatility hit a 52-week peak earlier, last seen at 70.4% -- in the 97th annual percentile, meaning elevated volatility expectations are being priced in.

Sentiment is noticeably skeptical elsewhere on Wall Street. Of the 14 brokerages covering ANF stock, 13 rate it a "hold" or worse. Plus, short interest surged 38.1% in the two most recent reporting periods to 19.8 million shares -- the most since April.
 

Stop leaving money on the table with the same old broken options trading approach...

There is no options strategy that more perfectly capitalizes during earnings season better than this simple call and put buying strategy. Perfect for aggressive traders looking to recover their suffering portfolios so far in 2022. With the simplest possible options strategy, Schaeffer's team with 100+ years of options trading excellence, target 200% gains on every single trade. So many trades are being beaten down by the market, but don't be one of them! Don't waste another second... join us right now before the next trade is released! 

 
Schaeffer's Daily Bulletin Offer
 


 


 
Special Offers from Schaeffer's Trading Partners