Put Options are Cheap on Downgraded Gap Stock

Gap is trading near a trendline with historically bearish implications

Jan 22, 2019 at 11:25 AM
facebook X logo linkedin

Analysts at Goldman Sachs are adjusting ratings on retail stocks today. For Gap Inc (NYSE:GPS), this meant a downgrade to "sell" from "neutral" and price-target cut to $23 from $27, with the brokerage firm citing concerns over slowing brand momentum. At last check, GPS stock is down 2.6% at $25.26, retreating from a trendline with historically bearish implications.

Looking closer at the charts, GPS came into 2019 struggling, but found a familiar floor in the $24.50-$25.00 neighborhood -- a region that marked bottoms in late November and December. A bounce off here brought the retail stock up to its 80-day moving average. According to Schaeffer's Senior Quantitative Analyst Rocky White, in the five previous times the equity has challenged resistance at this trendline, it was lower 15 days out 80% of the time, averaging a negative return of 2.1%.

gap stock daily chart jan 22

Options traders have been betting on additional losses at a breakneck speed. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Gap's 10-day put/call volume ratio of 10.41 ranks in the 98th annual percentile, meaning puts have been bought to open over calls at a quicker-than-usual clip.

Drilling down, the March 26 put has seen one of the biggest increases in open interest over the past 10 days, with nearly 5,200 contracts initiated. Data from Trade-Alert points to buy-to-open activity here, meaning options bears have been targeting a move below $26.

With Gap earnings not expected until late February, short-term options are pricing in relatively low volatility expectations at the moment -- which could increase the benefit of leverage. The stock's Schaeffer's Volatility Index (SVI) of 33% ranks in the 16th percentile of its annual range.


Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls



Rainmaker Ads CGI