The retail stock has averaged a loss the last seven times this has occurred
Retail stocks have been on fire recently, thanks to a strong round of corporate earnings reports throughout the sector. One name of notable interest is high-end retailer Tiffany & Co. (NYSE:TIF), which gapped higher post-earnings. However, the equity is now flashing a signal that's had historically bearish implications, suggesting it could be time to initiate an options hedge on a potential pullback for TIF stock.
On May 23, Tiffany announced first-quarter earnings and revenue beats, boosted its full-year forecast, and unveiled a $1 billion buyback program. The shares gapped 23% higher, eventually topping out at a record high of $135.25 last Wednesday, June 6. TIF stock has since pared some of these gains, last seen trading at $133.78, though still maintaining a 28.7% year-to-date gain.
Meanwhile, front-month implied volatilities fell off a cliff in the wake of the retailer's late-May earnings report. The stock's Schaeffer's Volatility Index (SVI) of 21% ranks in the 10th annual percentile, meaning short-term options are pricing in low volatility expectations at the moment.
According to Schaeffer's Senior Quantitative Analyst Rocky White, there have been seven other times since 2008 that Tiffany stock was trading within 2% of its 52-week high while its SVI was ranked in the bottom 20th percentile of its annual range. This resulted in an average one-month loss of 2.07%, with just 14% of those returns positive.
While the shares seem to be in a longer-term uptrend, elevating the possibility of a near-term pullback is the fact that Tiffany stock is currently oversold. This is based on the equity's 14-day Relative Strength Index (RSI), which was last seen at an extreme 82.2 reading. Shareholders looking to brace against such a possibility may want to consider a cheap protective put, especially with implied volatilities so low at the moment.