Dismal Earnings Reaction Has Signet Jewelers Bears Winning Big

SIG puts are popular with the stock short-sale restricted

Mar 14, 2018 at 10:15 AM
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Signet Jewelers Ltd. (NYSE:SIG) has a history of making volatile post-earnings swings, and today's action is no different. But despite the retailer being one of the best stocks to own on the S&P 500 Index (SPX) in March over the past decade, SIG shares have plummeted 16% out of the gate to $40.09, hitting a six-year low of $4.02 earlier, after the jewelry specialist reported earnings this morning.

For the fourth quarter, SIG reported adjusted earnings of $4.28 per share on revenue of $2.3 billion -- more than analysts were expecting. However, today's bearish reaction comes after an unexpected drop in quarterly same-store sales, and weak full-year profit and comparable sales forecasts. The company also said it was implementing a three-year cost-cutting plan.

Heading into today's trading, the stock was already struggling -- down nearly 39% from its Nov. 17 annual high of $77.91, due mostly to a massive post-earnings plunge that occurred just two trading sessions later. This sell-off has had short sellers cashing in on their bearish bets, with short interest on SIG down more than 40% from its early November high.

These bearish bettors are sidelined today, though, with Signet Jewelers stock on the short-sale restricted list. This may explain why put volume has popped, with more than 9,00 contracts exchanged so far -- 38 times what's usually seen, and volume pacing in the 100th annual percentile. Most active are the March 40 and April 45 puts, though it's not entirely clear how traders are positioning themselves here.

What is clear is that the March 50 put saw the biggest rise in open interest over the past 10 sessions, and most of the action was of the buy-to-open kind, according to the major options exchanges. More specifically, a number were initiated last Tuesday, March 6, for a volume-weighted average price of (VWAP) of $3.67, per Trade-Alert. The VWAP on these in-the-money puts is now $8.19, meaning these premium buyers have already doubled their money.


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