Abercrombie & Fitch Co. (ANF) and the $260,000 Earnings Bet

Abercrombie & Fitch Co. (ANF) will report earnings tomorrow morning

Digital Content Group
Mar 3, 2015 at 2:20 PM
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Abercrombie & Fitch Co. (NYSE:ANF) is set to report earnings bright and early tomorrow. Ahead of this, expectations are ramping up for a big post-event move, as the stock's 30-day at-the-money implied volatility earlier hit a 52-week high of 68.4%.

Digging deeper, ANF calls are running fast and furious, with 14,000 contracts on the tape -- roughly four times the expected intraday amount. According to Trade-Alert, one speculator initiated a long call spread at the weekly 3/13 25.50 and 28.50 strikes for a total net debit of nearly $260,000 (3,000 contracts * $0.86 net debit * 100 shares per contract), gambling on a move north of $28.50 by next Friday's close -- when the weekly series expires.

Historically speaking, ANF has made some solid moves to the upside following recent quarterly reports. In fact, over the last four quarters, the shares have averaged a 4% gain in the session subsequent to these events -- including an 11.3% jump one year ago.

Still, pessimism prevails on the Street. ANF's 50-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) is 2.19, which rests just 4 percentage points from an annual peak. What's more, almost 29% of the stock's float is sold short, and it would take more than seven sessions to cover these bets, at the security's average daily trading levels.

This isn't terribly surprising, though. Abercrombie & Fitch Co. (NYSE:ANF) is a long-term technical laggard. With the shares down 1.2% this afternoon at $24.12 -- due to a pair of early price-target cuts -- they're now staring at a year-over-year deficit of more than 42%.

Daily Chart of ANF since March 2014

 

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