Buyout Buzz Brings Chico's FAS, Inc. (CHS) Bulls to the Table

Chico's FAS, Inc. (NYSE:CHS) said late Friday it is in buyout talks with a handful of private equity firms

by Karee Venema

Published on Sep 14, 2015 at 11:24 AM

M&A Monday is in full swing, with news from the technology and telecom sectors garnering notable attention. Also in the spotlight is specialty retailer Chico's FAS, Inc. (NYSE:CHS), after news surfaced late Friday the company could be putting itself up on the auction block. The reports have sent the stock soaring, with shares of CHS up 10% at last check to trade at $16.62.

The sharp move to the upside has sparked a rush of call activity in CHS' options pits, with the contracts changing hands at 34 times the average intraday rate -- and outpacing puts by a 27-to-1 margin. Most active is the stock's October 17 call, where it seems safe to assume new positions are being purchased for a volume-weighted average price (VWAP) of $0.44. Based on this average entry price, breakeven for today's call buyers is $17.44 (strike plus VWAP).

Widening the sentiment scope reveals CHS speculators have shown a preference for puts over calls among options set to expire in three months or less. In fact, the stock's Schaeffer's put/call open interest ratio (SOIR) of 2.99 ranks in the 75th percentile of its annual range. Simply stated, speculative traders are more put-heavy than usual.

In the front-month series of options, specifically, peak put open interest of 2,956 contracts is found at CHS' September 16 strike. According to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), a number of contracts have been bought to open here since late July, meaning speculators were expecting the equity to settle south of $16 at this Friday's close -- when the series expires.

This skeptical stance shouldn't be too surprising, given Chico's FAS, Inc.'s (NYSE:CHS) longer-term technical backdrop. Since hitting an annual high of $18.98 in mid-February, the shares have given back nearly 13% -- and notched a three-year low of $13.25 on Aug. 24. However, regardless of where the stock settles at the respective expiration dates, one of the benefits of trading options is that speculators have limited capital on the line.

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