Kate Spade & Co (KATE) Option Bears Come Out of Hiding

An unusual crop of options bears has turned up today, as Kate Spade & Co (KATE) slumps alongside of a sector peer

Jun 2, 2016 at 3:26 PM
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Accessories designer Kate Spade & Co (NYSE:KATE) is down 5.1% at $21.50 today, apparently falling in step with sector peer Vera Bradley, Inc. (NASDAQ:VRA), which was slapped with a round of bearish brokerage notes after reporting quarterly earnings on Wednesday. KATE has added more than 20% year-to-date, but has spent the last couple of weeks stuck beneath resistance in the form of its 80-day moving average. As a result, options traders are taking an unusually pessimistic view.

KATE puts are crossing at three times their average intraday rate, with more than 5,100 contracts on the tape, compared to roughly 1,700 calls. The most active option today is the June 22 put, where 2,841 contacts have traded hands, and the International Securities Exchange (ISE) has confirmed that buy-to-open action is occurring. Buyers of the put are betting on a continued slide from KATE through the close on Friday, June 17, when the front-month option expires.

Today's preference for puts is a significant change of pace for the stock, however. Over the past two weeks at the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have purchased nearly 15 calls for each put. The resulting 10-day call/put volume ratio of 14.90 ranks higher than 70% of all readings in the past year.

Sentiment outside of the options pits has been relatively bullish, as well. Short interest on the security slid by more than 14% during the two most recent reporting periods, and now accounts for less than three days' worth of trading, at KATE's typical daily pace. The brokerage bunch has also been optimistic, with eight out of 11 analysts calling Kate Spade & Co (NYSE:KATE) a "strong buy," with not a single "sell" rating on the books.

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