Options Bears Pounce as Same-Store Sales Gash Gap Inc (GPS)

Gap Inc (NYSE:GPS) is a house on fire this morning, dropping over 12% after reporting a sharper-than-expected 6% year-over-year drop in March same-store sales. Citigroup is fanning the flames, too, cutting its price target on GPS to $25 from $26. With GPS stock on the short-sale restricted list, traders are piling into its options pits -- especially on the put side of the aisle.

By the numbers, over 10,000 put options have been exchanged -- 10 times the expected intraday amount, and more than doubling the number of calls on the tape. Most active is the weekly 4/8 25-strike put, which traders are buying to open -- hoping GPS extends its slide south of $25 through tonight's close, when the series expires. At last check, the shares were hovering around $24.25.

Over the last month, option buyers have targeted GPS puts over calls at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Specifically, the retail stock's 20-day put/call volume ratio of 1.93 shows long puts have nearly doubled long calls.

As a result, open interest on options expiring in the next three months is tilted decidedly in the direction of puts. This observation is clear from GPS' Schaeffer's put/call open interest ratio (SOIR) of 1.96, which also ranks in the put-skewed top quartile of its annual range.

Even looking beyond the options pits, bearish sentiment prevails. Eighteen of 21 analysts rate GPS a "hold" or worse, and almost 15% of its float is sold short. At the retail stock's average daily trading levels, it would take more than one week to cover these positions.

This negativity shouldn't come as a huge surprise, considering Gap Inc's (NYSE:GPS) underperformance. While the shares attempted to come back earlier this year, advances stalled near the round $30 level, and today's bearish gap has the stock back in the red on a year-to-date basis. Taking an even further step back, GPS has dropped over 43% year-over-year.

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