Gap Options Hot After Retailer Scraps Spinoff

Five price-target hikes are powering GPS today too

Patrick Martin
Jan 17, 2020 at 10:08 AM
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Retailer Gap Inc (NYSE:GPS) is in focus this morning, after abandoning its plans to spin off Old Navy. Instead, the company will focus on recuperating its dropping sales figures. Five analysts have upped their price targets in response, including to $20 from $19 at Wedbush. An analyst at Jefferies said it will "take time to heal," but called it the "right decision." 

Despite all of the news, Gap stock is down 0.2% to trade at $18.57 today. GPS remains stuck trading in a tight range between the $15-$19 regions. Overhead sits the shares' 200-day moving average, a trendline not toppled since March 1. Year-over-year, the equity is down 27.3%. 

The price-target flurry is to be expected, considering the bearish sentiment among analysts. All 16 in the brokerage community rate the stock a "hold" or worse, with not a single "buy" rating to be found. There's similar pessimism among short sellers, considering short interest increased by 14.3% in the most recent reporting period and now accounts for a healthy 19.4% of GPS' total available float.

Options traders have been betting bearishly too. At the the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 6.84 puts have been bought to open for every call over the last 10 days-- a ratio that sits higher than 83% of all other readings from the past year.

Calls are what's popular out of the gate today though. In just the first hour of trading, more than 2,600 have changed hands, 16 times the average intraday amount and volume pacing for the 100th percentile of its annual range. The most popular call is the weekly 1/24 19.50-strike call, followed closely by the 19-strike call in the same series.

Whatever the motive, options are affordably priced at the moment, from a volatility perspective. The stock's Schaeffer's Volatility Index (SVI) of 32% registers in the 10th percentile of its 12-month range, meaning short-term IVs have priced in lower volatility expectations only 10% of the time in the last year.


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