Herbalife Rally Could Have Options Traders Spooked

2 retail stocks are among the worst of Nasdaq and NYSE

by Emma Gilkey

Published on Aug 21, 2017 at 2:10 PM

U.S. stocks are moving in both directions this afternoon, with the Nasdaq struggling amid a rough start for tech stocks. Among the stocks in the spotlight today are global nutrition company Herbalife Ltd. (NYSE:HLF), boutique retailer Francesca's Holdings Corp (NASDAQ:FRAN), and clothing concern American Eagle Outfitters (NYSE:AEO). Here's a quick look at what's moving shares of HLF, FRAN, and AEO. 

HLF Shares Soar After Going-Private Talks, Buybacks

At last glance, Herbalife stock was up more than 11% at $68.75, after the firm said talks to be taken private fell through. Herbalife also said it began buying back up to $600 million HLF shares at $60-$68 apiece. HLF stock is now facing off against the key $68.50-$69.50 region -- where the shares landed after a May bull gap.

The equity's 10-day put/call volume ratio of 4.98 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the highest percentile of all other ratings in the past 12 months. This means put buying has been unusually popular, relative to call buying, during the past two weeks. 

FRAN Stock Sinks to Record Low

Francesca's stock was last seen trading 11% lower at $7.13, and earlier touched a record low of $6.70, after the company pre-announced a drop in second-quarter sales, warned of a "very challenging start" to the back-to-school season, and announced the departure of its chief merchandising officer. FRAN stock is among the worst of the Nasdaq, down a whopping 60% year-to-date, and had its price target cut by two brokerage firms. Specifically, SunTrust Robinson cut its price target on the boutique stock to $10 from $15, while Jefferies cut FRAN to $9 from $11. 

Despite the stock's dismal performance of late, the seven analysts following FRAN stock either carry "hold" or "strong buy" recommendations, with not a "sell" in sight. A round of downgrades could exacerbate Francesca's stock slide.

American Eagle Stock Drops Ahead of Earnings

American Eagle stock is trading down 5% at $10.62, and earlier touched a two-year low of $10.23, with several retailers among the worst of the New York Stock Exchange (NYSE) today. AEO has now dropped more than 30% year-to-date, and it looks like near-term options traders are more put-heavy than usual ahead of Wednesday's earnings report. AEO stock's Schaeffer's put/call open interest ratio (SOIR) of 1.44 sits among the highest of all other ratios in the past 12 months. After the retailer's earnings report in May, American Eagle stock plummeted to two-year lows.

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