L Brands Options Traders Set a Floor as Stock Slumps

LB traders may be selling to open the September 17 put

Aug 22, 2019 at 2:46 PM
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Stocks are mixed today as recession fears resurface and a pair of Fed speakers struck a hawkish tone toward future rate cuts, though a big day for Boeing (BA) is keeping the Dow above water. Among other individual names making notable moves today are medical equipment maker Edwards Lifesciences Corp (NYSE:EW), data analytics software firm Splunk Inc (NASDAQ:SPLK), and retailer L Brands Inc (NYSE:LB). Here's a quick look at what's moving the shares of EW, SPLK, and LB.

FDA Issues Class 1 Recall for Edwards Lifesciences' Heart Valves

Edwards Lifesciences stock was down more than 5% earlier, last seen trading 2.7% lower at $215.72. This comes after the U.S. Food and Drug Administration (FDA) issued a Class 1 recall -- the most severe classification -- of nearly 1,600 Sapien 3 heart valves, after balloons burst during implantation, which caused several injuries and one fatality. Longer term, EW stock has surged 30% since a late-May bounce off its 160-day moving average, and hit a record high of $226.41 on Aug. 20.

EW options traders appear to be betting on bigger losses through tomorrow's close. Amid accelerated activity -- 5,000 puts have traded so far today, 10 times what's typically seen at this point -- buy-to-open activity has been detected at the weekly 8/23 215-strike put. If this is the case, speculators expect the equity to sink below the strike price by 4 p.m. ET tomorrow, Aug. 23.

Cash Flow Woes Drop Splunk Stock

Splunk said it is buying real-time cloud monitoring firm SignalFx in a cash-and-stock deal valued at roughly $1.05 billion. The company also reported stronger-than-anticipated second-quarter adjusted earnings and revenue. However, a downwardly revised full-year cash-flow forecast has SPLK trading down 10.1% at $115.43 -- and analysts rushing to lower their outlooks on the stock.

Baird, for instance, downgraded Splunk stock to "neutral," while BMO Capital, FBN Securities, UBS, and Wedbush all cut their SPLK price targets. The vast majority of the 24 analysts covering the security still maintain a "buy" or better rating, while the average 12-month price target of $151.89 is a 31.4% premium to current trading levels.

Options traders remain upbeat toward a stock that's finding support near its 10% year-to-date return, and a trendline that's connected higher lows since late November. Calls are crossing at eight times the average intraday pace today -- nearing a new annual high -- and speculators appear to be purchasing new positions at the weekly 8/23 120-strike call.

L Brands Options Bears Cash In After Earnings

L Brands reported second-quarter adjusted profit that arrived above the consensus expectations. However, revenue fell short, while same-store sales unexpectedly declined amid continued weakness at Victoria's Secret. Price-target cuts at J.P. Morgan Securities (to $22), Wells Fargo (to $32), and CFRA (to $21) are only stoking the bearish flames, with LB stock last seen down 4.7% at $19.08, earlier hitting a nine-year low at $17.61.

LB options volume is running quick today, with 23,000 puts and 12,000 calls traded so far, four times the expected intraday amount. The September 20 put is most active, and it looks like bears may be liquidating their now in-the-money positions. Meanwhile, speculators appear to be setting a short-term floor near $17, with sell-to-open activity detected at the September 17 put.

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