History Says to Buy Puts On This Retail Stock

HBI options are attractively priced, too

Managing Editor
Jun 18, 2018 at 2:24 PM
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Retail sales were impressive in May, and the month was a strong one for apparel giant Hanesbrands Inc. (NYSE:HBI), too. However, the retail stock could be headed for trouble, after running into a key trendline that has had historically bearish implications. 

At last check, the security was up 2.2% to trade at $20.76, but still remains below its year-to-date breakeven level. Since falling to a four-year low of $16.38 on May 4, HBI fought back to add 26%. However, the rally appears to be running out of steam just above the $21.00 level, home to a 61.8% Fibonacci retracement of its early 2018 pullback.

This region also plays host to the shares' 320-day moving average. Per data from Schaeffer's Quantitative Analyst Chris Prybal, the other five times the security has come within one standard deviation of this trendline after a lengthy stay below it, it's gone on to average a one-month loss of 5.97%, and was positive only once. 

Stock Chart Fib Levels HBI

Options traders have been targeting these levels, too, with the July 20 and 21 calls seeing some of the biggest increases in open interest over the past 10 sessions. This could create a short-term ceiling for HBI, as the hedges related to these bets unwind over the next several weeks.

Traders looking to speculate on the equity's short-term price action may want to do so with options, which are attractively priced at the moment -- from a volatility perspective HBI currently sports a Schaeffer's Volatility Index (SVI) of 24%, which ranks in the 7th percentile of its annual range.

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