Pre-Earnings Optimism Picks Up On Deckers Outdoor Corporation (DECK)

Deckers Outdoor Corp (DECK) will report earnings after tonight's close

Jan 29, 2015 at 2:33 PM
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Deckers Outdoor Corp (NYSE:DECK) is slated to take its turn in the earnings confessional after tonight's close, and ahead of the event, call volume has surged to 16 times what's typically seen at this point in the day. Short-term contracts are in high demand, too, as evidenced by the equity's 30-day at-the-money implied volatility, which is up 4.6% at 50.7%.

Drilling down, DECK's two most active options are the weekly 1/30 83- and 89-strike calls, where it appears a long call spread was initiated for a net debit of $2.65 per pair of contracts ($3.60 ask price for the lower-strike calls minus $0.95 bid price for the higher-strike calls). By initiating the bullishly biased strategy, the trader is hoping DECK will finish tomorrow's session -- when the weekly series expires -- at or above $89, in which case she can pocket her full potential reward of $3.35 (difference between the two strikes, less the net debit).

From a wider sentiment perspective, today's call-skewed session is just more of the same. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for instance, DECK's 10-day call/put volume ratio of 1.42 ranks higher than 69% of similar readings taken in the past year. In other words, calls have been bought to open over puts at a faster-than-usual pace in recent weeks.

Looking at the charts, though, DECK's recent trajectory -- along with sector peer Crocs, Inc. (NASDAQ:CROX) -- has been to the downside. In fact, since hitting a three-year peak of $99.88 in mid-December, the shares have shed nearly 18% to trade at $82.01. In light of this, some of the recent call buying may be a result of short sellers hedging against any post-earnings upside. At present, more than 19% of Deckers Outdoor Corp's (NYSE:DECK) float is sold short.

 

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