Dick's Sporting Goods Shares Slip on Same-Store Sales

Call buying was popular before earnings at the ISE, CBOE, and PHLX

Mar 12, 2019 at 9:42 AM
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Dick's Sporting Goods, Inc. (NYSE:DKS) this morning reported fourth-quarter earnings per share of $1.07, edging out a consensus analyst estimate of $1.06, and revenue also came in higher than expected for the period, with e-commerce sales rising 17%. However, a 3.7% decline in same-store sales has DKS stock down 6.3% this morning at $36.46, putting it just above the 50-day and 200-day moving averages. This would also mark the equity's worst single-day earnings reaction since August 2017.

Sentiment in the options pits ahead of earnings was surprisingly bullish. Take the 10-day call/put volume ratio of 2.39 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which not only shows that call buying more than doubled put buying in the past two weeks, but also ranks in the 71st annual percentile. In other words, call buying was more popular than normal, compared to put buying.

Looking closer, the largest increase in open interest in the past 10 days was at the March 41.50 call, where more than 9,200 contracts were added, with just 5,600 contracts added at the next closest position. Most of the activity here was of the buy-to-open activity, hinting at bullish expectations. Also seeing heavy buying action during this period was the March 39 call. Both of these contracts are set to expire at the close this Friday.

These upside call options could be connected to the high short interest on Dick's, however. While short interest has decreased some since the late-2018 peak, it still accounts for more than one-fifth of DKS' float, and it would take these bears almost eight sessions to cover, based on average daily trading volumes.

Despite the sharp slide today, the move is actually quite smaller than the 16.4% swing the options market was pricing in. By its own standards, DKS stock hasn't been too volatile in the past few months, according to its 120-day historical volatility of 34%, just 4 percentage points from a 12-month low. Even with the losses today, it'll hold a slim year-over-year lead, after repeatedly meeting resistance near the $40 level since last May.

 

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