Gap Inc (GPS) Rally on Same-Store Sales Delights Option Bulls

Gap Inc (NYSE:GPS) same-store sales weren't as bad as expected, and the stock is surging as a result

Jun 3, 2016 at 10:56 AM
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Retail stock Gap Inc (NYSE:GPS) is outperforming the broader stock market today, after the company announced a 6% decline in same-store sales for May -- a smaller-than-expected drop. GPS stock was last seen 3.8% higher at $19.03 as a result, putting it on pace for its second-best close since its early May bear gap. And while GPS is still down 50% year-over-year, today's move may be enough to make recent options traders happy. 

For instance, GPS sports a 10-day call/put volume ratio of 1.60 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which tops 85% of all readings from the past year. This indicates calls have been bought to open at a faster-than-usual pace during the past two weeks. 

The June 18.50 call added the most open interest of any front-month option during the past two weeks. Data from the major options exchanges confirms at least some buy-to-open activity here, suggesting traders are betting on GPS extending its lead above $18.50 through the close on Friday, June 17, when the series expires. 

As for today, GPS options are trading at an accelerated rate. However, puts have a slight advantage, with the weekly 6/10 19-strike put standing as the most popular option. Almost all of the activity here is due to a block of 5,000 contracts that may have been sold to close.

Shifting gears, while GPS option bulls are likely cheering today's price action, the same can't be said for short sellers. Over 13% of the stock's float is sold short -- though some of these bears may have purchased call options to hedge their positions against an unexpected breakout, like the one today. 

Analysts are even more bearish on Gap Inc (NYSE:GPS). Twenty-two of the 24 analysts covering GPS say it's a "hold" or worse, while the retail stock currently sits just below its consensus 12-month price target of $19.66. 

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