Restoration Hardware Holdings Inc (RH) Options Pits Go Off on Goldman Note

Restoration Hardware Holdings Inc (RH) is running higher after being added to Goldman Sachs' "Conviction" list

by Alex Eppstein

Published on Aug 19, 2016 at 11:19 AM

Luxury furnishings retailer Restoration Hardware Holdings Inc (NYSE:RH) is going gangbusters today. After receiving some serious love from Goldman Sachs -- which raised its rating to a "buy," added RH to its "Conviction" list, and upped its price target to $40 -- the stock has jumped 7.6% to trade at $33.11. Meanwhile, options traders are busy betting on even more short-term headway.

Diving right in, RH call options are changing hands at an astounding 11 times the expected intraday rate. The  most active strike by a significant margin is the September 35 call, with several signs suggesting traders are buying new out-of-the-money positions. Assuming that's the case, these bettors foresee RH toppling $35 by the close on Friday, Sept. 16, when the soon-to-be front-month options expire.

Bullish betting has been the norm in recent months. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 2.22 RH calls for every put over the past 10 weeks. Likewise, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.59 rests below 94% of all other readings taken in the past year. In other words, traders targeting options in the front three-months' series have rarely been so call-slanted.

That said, there are pockets of pessimism on Wall Street, too. Eighty percent of analysts rate RH a "hold" or worse. Plus, one-quarter of the retail stock's float is sold short, representing a week's worth of trading activity, at the equity's typical trading levels. In light of these sky-high short-interest levels, it's possible some of the recent call buyers are actually shorts seeking protection.

Returning once more to the charts, it's worth noting Restoration Hardware Holdings Inc (NYSE:RH) hasn't closed above the 35 strike since early June. And, despite a fast start today, the shares are running into resistance at their descending 120-day moving average. In other words, an in-the-money finish for the September 35 call buyers is far from guaranteed, as is corroborated by the option's delta of 0.41, or 41%.

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