Gap Stock Moves Lower Ahead of Earnings Report

The company reports second-quarter earnings after today's close

Digital Content Manager
Aug 26, 2021 at 2:36 PM
facebook twitter linkedin

Apparel retailer Gap Inc (NYSE:GPS) is making moves ahead of today's second-quarter earnings report, which is due out after the close. The company announced it acquired e-commerce startup Drapr, which has an application that allows customers to create 3D avatars to virtually try on clothing. Despite this new acquisition, the shares are down 3.7% at $26.46 at last check.

Today's negative price action could be part of a long-term trend. The equity has been trickling down the charts since surging to a May 18, nearly six-year high of $37.63. Meanwhile, the 40-day moving average has been pressuring shares lower since July, rejecting both of Gap stock's latest rallies. Longer term, though, GPS still carries a roughly 55% year-over-year lead.

GPS 40 Day

The past two years have been kind to Gap stock, which had positive post-earnings reactions in five of these eight next-day sessions. However, the retailer did post a 19.6% drop in November. Options traders are pricing in a 13.5% swing for the security this time around, which is more than double the 6.4% move GPS averaged following its last eight reports, regardless of direction. 

Analysts have been skeptical of the security, with nine of the 13 in question calling it a tepid "hold." Meanwhile, shorts have been piling on. Short interest rose 18.3% over the most recent reporting period, and the 16.30 million shares sold short now account for 8.1% of the stock's available float. 

The options pits are firmly in the bearish camp as well. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), GPS' 10-day put/call volume ratio sits higher than 85% of readings from the past year. This means puts have been getting picked up at a much quicker-than-usual clip in the past two weeks.

This pessimism is getting reinforced today. While calls are outpacing puts, 25,000 puts have crossed the tape so far, which is double what is typically seen at this point. Most popular is the weekly 8/27 25-strike put, followed by the 24-strike in the series, with new being opened at the latter.


Stop leaving money on the table with the same old broken options trading approach...

There is no options strategy that more perfectly capitalizes during earnings season better than this simple call and put buying strategy. Perfect for aggressive traders looking to recover their suffering portfolios so far in 2022. With the simplest possible options strategy, Schaeffer's team with 100+ years of options trading excellence, target 200% gains on every single trade. So many trades are being beaten down by the market, but don't be one of them! Don't waste another second... join us right now before the next trade is released! 

Best stocks for October and worst stocks for October


Special Offers from Schaeffer's Trading Partners