Avon Products, Inc. (AVP) Options Trader Aims For Higher Highs

At least one options trader thinks Avon Products, Inc. (AVP) will take out the $7 level within the next month

Oct 18, 2016 at 12:11 PM
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Avon Products, Inc. (NYSE:AVP) stock is getting a big boost today, thanks to some early options trades. According to Trade-Alert, one speculator bought to open at least three 2,500-contract blocks of November 7 calls just after 10 a.m. ET, anticipating the makeup stock will topple the out-of-the-money level by back-month expiration, at the close on Friday, Nov. 18. While the shares were lower at the time, they've been smoking-hot ever since.

At last check, AVP is up 6.2% at $6.58, and earlier tapped at annual high of $6.60. On a year-to-date basis, the stock has now advanced over 62%. As such, delta on the out-of-the-money call has risen to 0.42 from 0.29 at Monday's close, suggesting the chances of an in the money finish are now slightly better than 2-in-5.

Options traders haven't always been so keen on AVP calls. In fact, during the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open nearly four puts for every call. The resultant put/call volume ratio of 3.88 ranks just 10 percentage points from an annual peak.

That said, not all of these put buyers are necessarily bearish. Especially given AVP's technical track record, it seems probable that some of these traders were actually shareholders scooping up puts to hedge against a surprise move lower.

Elsewhere, though, another group of traders has been more clearly bearish -- and, as such, could be feeling the heat amid Avon Products, Inc.'s (NYSE:AVP) bull gap. Specifically, short sellers may be scrambling to cover, considering 25 million shares are sold short -- which would take over a week to buy back, at the stock's average daily volume. Moreover, analysts may be reevaluating their generally downbeat perspective, with seven of nine maintaining a "hold" or a "strong sell" opinion.

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