Can Urban Outfitters, Inc. (URBN) Cash In On Nostalgia?

Retailer Urban Outfitters (URBN) is betting nostalgia is in style, with the stock trading higher ahead of tomorrow's Nintendo NES Classic release

Celeste Taylor
Dec 5, 2016 at 11:42 AM
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As holiday shopping season ramps up, Urban Outfitters, Inc. (NASDAQ:URBN) is in focus, after announcing via Instagram that the company will be selling Ninteno NES Classic editions online, beginning tomorrow. The consoles sold out fast last month, and Wedbush last week said Black Friday weekend "traffic was strong at both Urban" and its Anthropologie unit. This affinity for nostalgia among consumers may also be helping URBN shake off a price-target cut to $31 from $34 by J.P. Morgan Securities.

So far today, shares of the trendy retailer have managed to tack on 2.6% to trade at $32.50. Since touching a six-year low in December 2015, URBN has enjoyed a series of higher highs and lows, but has dropped 20% since tapping an annual high of $40.80 in November, largely due to a post-earnings slide just ahead of Black Friday. However, it appears URBN may have found a foothold at its 200-day moving average, which has contained the shares' fall as of late.

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In the option pits, calls have been the name of the game in recent weeks. URBN's Schaeffer's put/call open interest ratio (SOIR) of 0.91 sits in the bottom quartile of its annual range, indicating a bigger-than-usual call-skew among near-term option traders. Drilling down, the top open interest position is the at-the-money December 32.50 call, with 3,123 contracts currently on the books.

Outside the option pits, traders look a little less optimistic. URBN's short interest up 26.5% over the last two reporting periods, with 16.8% of URBN's float sold short, which would take nearly a week of trading to cover, at URBN's average daily volume. Of course, some of URBN's recent call buying -- particularly at out-of-the-money strikes -- could be short sellers hedging their bets.

Regardless of motive, now appears to be an opportune time to strike on URBN's near-term options. Urban Outfitters, Inc. (NASDAQ:URBN) currently sports a Schaeffer's Volatility Index (SVI) of 37%, which sits lower than 85% of all other readings from the past 12 months, suggesting near-term option traders are currently pricing in relatively muted volatility expectations. Meanwhile, URBN's Schaeffer's Volatility Scorecard of 84 suggests URBN has tended to exceed volatility expectations over the past year.


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