L Brands Stock Surge May Be Short-Lived

Calls remain a hot commodity, however

Managing Editor
Jan 3, 2020 at 3:04 PM
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Yesterday we dove into a few of the best stocks to own in the first quarter, but today, we are dipping our toes into the opposite pool. Retailer L Brands Inc (NYSE:LB) has struggled to gain momentum since its early August bear gap, and has now shed 28% over the past 12 months. This afternoon, LB is up 8% at $18.88, thanks to an upgrade to "buy" at BofA-Merrill Lynch. However, data from Schaeffer's Senior Quantitative Analyst Rocky White shows this surge may be short-lived.

Specifically, the equity has landed on White's list of 25 stocks to avoid this quarter. White's data shows that the Victoria's Secret parent has averaged a loss of 1.64% in the first quarter over the past 10 years, and has finished the three-month period in negative territory 50% of the time. Another loss of this magnitude would put LB well on its way to a journey back near its mid-December lows.

Daily LB since Jan

In the options pits, data at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), shows LB with a 10-day call/put volume ratio of 11.12, which sits higher than 91% of readings from the past year. Echoing this, short-term options traders have rarely been more bullish, per the security's Schaeffer's open interest ratio (SOIR) of 0.66, which sits in the 9th percentile of its annual range. 

Meanwhile, short sellers look to be heading for the exits, with a slight 1.9% drop during the most recent reporting period. This accounts for nearly 8% of the stock's total available float, or 2.6 times the average daily volume.

 

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