Tiffany & Co. (TIF) Options Traders Brace for More Downside

More lows may be in store for Tiffany & Co. (NYSE:TIF)

Jul 13, 2016 at 1:18 PM
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Tiffany & Co. (NYSE:TIF) is moving lower today, possibly due to headwinds from fellow luxury goods retailer Burberry, which just reported disappointing sales. This is just more of the same for TIF stock, though, as the shares have been knocking out lower lows for roughly two years now. In fact, TIF has given back more than one-third of its value in the past 12 months, after today's 0.6% drop to trade at $62.33, hitting a three-year low of $56.99 on June 27. This has resulted in a strong put-skew in the stock's options pits -- a trend that is continuing today, with puts outpacing calls by a nearly 3-to-1 margin.

More broadly, TIF's Schaeffer's put/call open interest ratio (SOIR) stands at 1.92, meaning put open interest almost doubles call open interest among options scheduled to expire within three months. Moreover, this SOIR ranks in the 85th annual percentile, signaling a stronger-than-usual put-bias among these short-term traders. 

Going off this point, more than 12 puts have been bought to open for every call during the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The resulting put/call volume ratio of 12.63 sits just 1 percentage point from an annual high. 

A closer look reveals a single trader may be responsible for much of this activity. Trade-Alert indicates about 6,000 August 57.50 puts and 3,000 August 60 puts were initiated on Monday's session -- making these two strikes home to peak open interest for TIF options. Data from the major options exchanges confirms sell-to-open activity at the 57.50 strike, and buy-to-open activity at the 60 strike, suggesting a trader likely initiated a put ratio spread. If this is the case, she is eyeing a move down to $57.50 for TIF by the time the options expire on Friday, August 19. 

Bullish or bearish, now's a opportune time to buy premium on near-term TIF options. This is according to the stock's Schaeffer's Volatility Index (SVI) of 23%, which ranks below 83% of the past year's worth of readings. Said simply, TIF's short-term options are attractively priced at current levels, from a volatility perspective.

The analyst community is beginning to show signs of skepticism, as well. RBC, Deutsche Bank, and Nomura all lowered their price targets on TIF this month. However, the average 12-month price target still stands at a lofty $73.66. Plus, with seven analysts giving the stock a "strong buy" rating -- versus seven that consider the shares a "hold" or "strong sell" -- it would seem there's potential for additional bearish attention to drive TIF lower. 

Tiffany & Co. (NYSE:TIF) could also be hurt if more short sellers jump aboard. For example, short interest increased by 12% in the latest reporting period, and the almost 15 million TIF shares now sold short represent a five-year high. As you can see below, TIF shares have fallen in sync with the rise in short interest that began back in 2014 -- certainly a trend worth monitoring. 

TIF short interest July 13

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