Coty Stock Surges After Selling 9% of Wella's Stake

Options traders have been unusually call-biased on Coty

Deputy Editor
Oct 1, 2021 at 9:44 AM
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Makeup manufacturer Coty Inc (NYSE:COTY) just announced that it entered a definitive agreement to sell about 9% of its stake in its Wella unit to KKR (KKR) for about half of KKR's remaining convertible preferred shares in Wella. The transaction will bring Coty's stake in the brand down to 30.6%, after last December selling KKR roughly 60% of its stake. 

The shares of Coty are up 7.1% at $8.41 this morning, and it looks like the equity could find its footing at the $7.70 level once again. The stock has suffered on the charts following an early September bear gap, which pushed the shares below the $8.60 level. And over the last three months, COTY lost 15.8%, though it still boasts a more than 12% lead in 2021. 

Options traders have been extremely optimistic. This is per COTY's Schaeffer's put/call open interest ratio (SOIR) of 0.10, which stands below all other readings from the past year. In other words, short-term options traders haven't been more call-biased recently.

Plus, over 35 calls have been picked up for every put at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), making up a ratio that sits in the 92nd percentile of its annual range, meaning these long calls are being picked up at a much quicker-than-usual clip. 

Now looks like an ideal time to join these options traders, seeing as these premiums can be had at a relative bargain. The stock's Schaeffer's Volatility Index (SVI) of 54% sits below all but 8% of annual readings, implying options traders are pricing in relatively low volatility expectations for COTY at the moment. 

 

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