Coach Inc (COH) Options Heat Up After Earnings

Bullish Coach Inc (COH) options traders may be hoping for an extended rally

Nov 1, 2016 at 11:45 AM
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Luxury goods retailer Coach Inc (NYSE:COH) reported its fiscal first-quarter results this morning, with earnings matching estimates, and revenue falling a hair short. Traders are reacting positively so far, with the stock last seen up 3.8% at $37.25. Option bulls should be breathing a sigh of relief, but some may be hoping COH can keep the rally alive a bit longer. Meanwhile, the stock's options pits are seeing accelerated action on both the call and put sides of the aisle.

COH options are changing hands at five times the expected intraday rate, with calls taking a modest lead over puts. In fact, total options volume is on pace to finish in the 92nd percentile of its annual range. However, based on International Securities Exchange (ISE) data, it appears a large portion of today's activity is the result of options traders closing their existing positions.

Speaking of existing positions, options traders were largely eyeing a move to the upside heading into earnings. Over the past 10 sessions, the November 37.50 call saw the largest rise in open interest, adding over 7,900 contracts. A hefty portion of these positions were bought to open, according to data from the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In other words, buyers of the now near-the-money call are looking for COH to extend its rally beyond $37.50 through the option's expiration, at the close on Friday, Nov. 18.

From a broader perspective, call buying has been a popular strategy in COH's options pits of late. The stock's 10-day call/put volume ratio across the ISE, CBOE, and PHLX stands at 9.91, indicating long calls outnumbered long puts by a nearly 10-to-1 clip over the past two weeks of trading. What's more, this ratio sits higher than 95% of all comparable readings in the past year.

Sentiment toward the stock has been fairly upbeat outside of the options arena, as well. For example, two-thirds of the brokerage firms providing coverage rate COH a "strong buy," with only one analyst maintaining a rating worse than a "hold." Plus, JPMorgan Securities just bumped its price target up to $41 from $40.

From a technical standpoint, Coach Inc (NYSE:COH) has had a fairly strong year, adding 13.8% so far in 2016. The shares are off nearly 15% from their July annual high, but they've found a strong ally in the $35 level. Plus, today's pop has COH on pace to close above its 40-day moving average for the first time since early August.

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