Gap Stock Climbing on Election Day Action

A short squeeze could fuel additional GPS gains

Jake Scott
Sep 1, 2020 at 10:04 AM
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Gap Inc. (NYSE: GPS) announced today that it will pay employees of the firm's Old Navy unit to work the polls on Election Day. The retailer currently employs 50,000 field employees in more than 1,000 locations in the U.S., and this year will partner up with the Civic Alliance and Power the Polls to recruit 250,000 new poll workers to ensure polling sites stay open and operate efficiently on November 3. Meanwhile, the clothing retailer was last seen up 0.2% to trade at $17.46, erasing earlier losses after UBS hiked its price target to $17 from $12. 

Gap stock has more than tripled off its April 2 all-time low of $5.26. And while the shares remain stymied by their year-to-date breakeven level, their ascending 20-day moving average has stepped up as support this summer. In that three-month span, GPS has tacked on 61%. 

An unwinding of pessimism could help Gap stock reclaim its year-to-date level. Short interest fell 8.4% in the most recent reporting period, yet the 34.87 million shares sold short still takes up a healthy 17% of GPS' total available float. More tailwinds could come from a shift in analyst sentiment, with 15 of the 18 in coverage sitting on "hold" or worse ratings and the consensus 12-month price target of $17.35 a slim 0.5% premium to its current perch.

In the options pits though, calls rule the roost. This is per Gap stock's 50-day call/put volume ratio at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). That ratio sits higher than all but 1% of readings in its annual range, suggesting a much healthier-than-usual appetite for long calls in the last 10 weeks. Echoing this is the security's Schaeffer's put/call open interest ratio (SOIR) of 0.38, which ranks in the lowest annual percentile -- highlighting a massive appetite for calls among short-term speculators, as well. 

With earnings in the rearview mirror, premium can be had for a bargain right now. This is per GPS's Schaeffer's Volatility Index (SVI) of 68%, which ranks in the low 9th annual percentile. This means short-term options are pricing in lower-than-usual volatility expectations.


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