Put Options Pile Up on These 3 Retail Stocks

Abercrombie & Fitch Co. (NYSE:ANF), American Eagle Outfitters (NYSE:AEO), and TJX Companies Inc (NYSE:TJX) put options are popular today

May 16, 2016 at 2:21 PM
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Retail earnings have been shaking up the market recently, with most retail stocks tumbling on lackluster results. There's opportunity for more big moves ahead, with several retailers set to report earnings within the next couple weeks -- including Abercrombie & Fitch Co. (NYSE:ANF), American Eagle Outfitters (NYSE:AEO), and TJX Companies Inc (NYSE:TJX). Today, all three of those stocks are seeing interesting options trading activity.

ANF, which will report earnings next Thursday morning, is seeing put options fly off the shelves at 9 times the usual intraday rate. In fact, the 12,000 contracts on the tape dwarf the roughly 3,500 calls exchanged. One trade being flagged by Trade-Alert is a bear put spread initiated at the weekly 5/27 23.50 and 24 strikes. By buying to open the higher strike and selling to open the lower, the speculator is counting on ANF to fall to $23.50 by next Friday night's close, when the series expires.

Unfortunately for these option bears, ANF has historically outperformed in the wake of earnings -- which, this time around, are scheduled to hit the Street one day ahead of expiration. Over the last four quarters, the retail stock has been positive in the session following the company's reports, with an average gain of 13.1%.

Should history repeat itself, a round of upgrades could send Abercrombie & Fitch Co. even higher, considering 15 of 21 analysts rate it a "hold" or worse. Options traders, meanwhile, have been unusually bullish toward the retail stock. At last check, the shares were up 1% at $24.28 and are consolidating atop their 320-day moving average.

Teen apparel rival AEO hasn't been nearly as lucky in the aftermath of its earnings reports. Looking back eight quarters, the stock has finished the subsequent session lower six times, with an average loss of nearly 7%. While the shares are up 1.7% today at $14.09, they've surrendered 9% year-to-date -- and more losses could be in store following Wednesday night's earnings call.

In today's options pits, the near-the-money May 14 put is most active, with one trader buying to open a sweep of 4,999 contracts for $0.55 apiece, or a total of about $275,000 (premium paid * number of contracts * 100 shares per contract). The speculator's goal is for AEO to breach $14 by this Friday's close, when the options expire. If it doesn't, the most the trader stands to lose is the entirety of her initial cash outlay.

Of course, plenty of other options traders have been betting bearishly on American Eagle Outfitters. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 50-day put/call volume ratio of 0.91 sits just 10 percentage points from a 12-month high.

Puts are also popular on TJX, ahead of tomorrow morning's earnings report. Specifically, the contracts are being exchanged at 12 times the expected intraday clip, and their current volume ranks in the 99th percentile of their annual range. Digging deeper, it appears options traders are buying to open the June 70 put, anticipating a move south of the round $70 level by June expiration. On the other side of the aisle, one speculator is opening a 1x2 ratio call spread at the May 75 and 77.50 strikes.

Based on what's currently happening on the charts -- and also what's transpired in the aftermath of TJX Companies Inc's recent earnings report -- the bullish bet is more understandable. Right now, the stock is up 3% at $74.87 -- though it did gap lower last Wednesday due to broader retail sector headwinds. In terms of post-earnings performances, TJX has advanced in the session following seven of the company's last eight quarterly reports.

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