Bearish Betting Stays Hip in The Gap's (GPS) Options Pits

A downgrade has Gap Inc (GPS) puts in high demand

by Digital Content Group

Published on Feb 13, 2015 at 2:01 PM
Updated on Aug 5, 2020 at 10:00 AM

Credit Suisse lowered its rating on Gap Inc (NYSE:GPS) -- and sector peer Abercrombie & Fitch Co. (NYSE:ANF) -- to "underperform" from "neutral." As such, GPS was last seen 0.7% lower at $41.26, with options traders rushing in to place bearish bets. Specifically, puts are crossing the tape at 1.8 times normal intraday rates.

The February 42.50 put is among the most popular strikes today, more than tripling the next closest put. With buy-to-open activity detected here, speculators are crossing their fingers that GPS will drop further below $42.50 by next Friday's close, when the contracts cease trading.

The preference for puts over calls is nothing new in the equity's options pits. According to GPS' 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 2.05 -- which ranks in the 85th percentile of its annual range -- speculators have bought to open puts over calls at a faster rate only 15% of the time in the past year.

Reinforcing this bias toward puts is the stock's Schaeffer's put/call open interest ratio (SOIR). At 1.25, this ratio is higher than 78% of all similar readings from the past 52 weeks.

Most analysts covering GPS remain unsure of the stock. Specifically, 17 out of the 24 brokerage firms tracking the shares rate them a "hold," despite some recent price-target hikes.

Gap Inc (NYSE:GPS) has done little to woo investors on the charts. So far in 2015, the security has dropped 2%.


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