Option Bears Aren't Buying GNC Holdings Inc's (GNC) Bounce

Talk of a potential sale hasn't stopped put traders from dominating GNC Holdings Inc's (GNC) options pits

May 2, 2016 at 11:56 AM
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Health and wellness retailer GNC Holdings Inc (NYSE:GNC) is trading 4.1% higher at $25.35 today on reports that the company is exploring strategic options, including a possible sale. The stock fell sharply last week, after the retailer reported lackluster first-quarter earnings and lowered its full-year outlook, losing a brief foothold at its 200-day moving average. The bear gap also dropped GNC south of its 30-day moving average for the first time since mid-February. Year-over-year, the equity has now given up 43%, and based on the action in the options pits, traders are convinced it will resume its longer-term trend lower.

GNC Daily Chart

Turning to Wall Street, analysts reacted poorly to last week's financial report -- more of the same for GNC, which currently holds seven "hold" ratings, compared to three "buy" or better recommendations. This tepid assessment isn't terribly surprising, considering the shares have underperformed the S&P 500 Index (SPX) by 20 percentage points over the past two months.

In the options pits, bearish betting has been the norm of late. In fact, longs puts have more than doubled calls over the last 50 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resulting put/call volume ratio of 2.29 sits higher than 99% of all readings taken in the past year.

Today, GNC options are trading hands at a staggering 11 times their typical intraday pace, with puts leading the way once again. Specifically, about 4,500 puts have crossed the tape -- nearly three times the number of calls -- with put volume seated in the 99th annual percentile. It looks like traders may be targeting longer-term losses, as the most active options are the September 25 and December 22.50 puts -- with buy-to-open action spotted at each.

It's an attractive time to pick up premium on short-term GNC options. Due to a post-earnings volatility crush, the stock's Schaeffer's Volatility Index (SVI) of 43% ranks in the low 18th percentile of its annual range. That means GNC Holdings Inc's (NYSE:GNC) near-term options are pricing in relatively low volatility expectations at the moment.

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