Ralph Lauren Stock Higher on Analyst Upgrade

Options traders have been call-heavy on RL stock in recent weeks

by Emma Duncan

Published on Mar 22, 2018 at 10:27 AM

Retail stock Ralph Lauren Corp (NYSE:RL) is trading higher this morning, after receiving an upgrade to "outperform" from "market perform," and a price-target hike to $122 from $110, from Cowen and Company. The brokerage firm waxed optimistic on Ralph Lauren's growing Instagram presence and its "growth opportunities overseas, especially in China where the brand is extremely underpenetrated." In response, RL stock was up 1.2% at $110.79, at last check.

Ralph Lauren stock is up 41% year-over-year, with help from the long-term support of the 80-day moving average. More recently, RL touched a two-year high of $119.28 Jan. 24, before pulling back with the broader equities market in early February, but today is pacing for its highest close since Feb. 1.

In the options pits, data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows RL with a 10-day call/put volume ratio of 9.63, ranking in the highest percentile of it annual range. This indicates calls have been purchased over puts at a much faster-than-usual clip during the past two weeks.

Some of that call buying -- especially at out-of-the-money strikes -- could be attributable to short sellers seeking an options hedge. Short interest accounts for nearly 13% of the retailer's total available float, and would take more than two weeks to buy back, at the equity's average pace of trading. A short squeeze could propel RL shares even higher.

Whatever the motive, speculators are scooping up short-term options at a relative bargain. Ralph Lauren stock's Schaeffer's Volatility Index (SVI) is ranking in at 28%, in the bottom 19% of its annual range. This suggests that near-term options are pricing in relatively low volatility expectations for RL shares.

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