Foot Locker Has History On Its Side Before Earnings

FL stock typically performs well in November-December

by Andrea Kramer

Published on Nov 19, 2018 at 11:26 AM
Updated on Nov 19, 2018 at 11:26 AM

Athletic apparel retailer Foot Locker, Inc. (NYSE:FL) is expected to report third-quarter earnings after the close tomorrow, Nov. 20. Although FL shares gapped lower after earnings in late August, the stock has seasonality on its side this time around.

Specifically, Foot Locker has been among the best retail stocks to own in the November-December period, looking back 10 years. The stock has ended this period higher 70% of the time, with an average gain of 6.24%, per data from Schaeffer's Senior Quantitative Analyst Rocky White. Plus, the day after earnings last November, FL shares soared 28.2%.

Looking back eight quarters, FL stock has averaged a one-day post-earnings reaction of 15.6%, regardless of direction. Options traders are expecting more of the same this time around, with short-term options pricing in a 15.3% swing for the equity, per implied volatility (IV) data.

As for direction, recent option-buying trends suggest speculators are expecting a rally from FL after earnings. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day call/put volume ratio of 3.98, indicating nearly four calls bought to open for every put in the past two weeks. This ratio is in the 84th percentile of its annual range, pointing to a much healthier-than-usual appetite for bullish Foot Locker bets over bearish.

On the other hand, short interest on FL soared 26.2% during the past two reporting periods, and now accounts for a healthy 13.5% of the stock's total available float. In fact, at the equity's average daily trading volume, it would take about six sessions to buy back these bearish bets. Against this backdrop, it's possible that some of the recent call buying -- particularly at out-of-the-money strikes -- could be attributable to short sellers seeking an options insurance plan ahead of earnings.

At last check, Foot Locker stock was down 1% to trade at $50.39. The stock recently broke north of a trendline connecting lower highs since the mid-June peak of $59.40, and has spent most of November testing a foothold in the round-number $50 region. Should the stock once again enjoy a rally into December, another 6.24% pop from current levels would put FL around $53.50 -- territory not charted since August.

FL stock chart nov 19


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