3 Retail Stocks Seeing Unusual Put Activity Ahead of Earnings

Put volume is accelerated on retail stocks DLTR, BKS, and DSW ahead of tomorrow morning's quarterly earnings reports

Nov 21, 2016 at 2:27 PM
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Recognizing that retail stocks have historically outperformed during Thanksgiving week, we're going to take a harder look at three names set to report earnings tomorrow morning: Dollar Tree, Inc. (NASDAQ:DLTR)Barnes & Noble, Inc. (NYSE:BKS), and DSW Inc. (NYSE:DSW). What stood out about these three retail stocks is that they have seen heavy call buying in recent weeks, but today, put volume is picking up the pace. Here's the most recent pre-earnings options data on retail stocks DLTR, BKS, and DSW. 

During the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), DLTR has accumulated a call/put volume ratio of 5.68, meaning almost six calls have been purchased to open for every put. What's more, this ratio ranks in the 90th annual percentile. Reinforcing this call bias is the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.30 -- an annual low. 

In today's trading, both call and put volume are accelerated, with roughly 14,000 contracts on the tape, compared to an expected intraday amount of 3,043. While calls are crossing at three times what's typically seen, DLTR put options are trading at six times the average intraday rate. Among the most put options is the December 75 strike, where it looks like some of the activity is of the buy-to-open kind. In this case, put buyers expect the stock to move below $75 by options expiration at the close on Friday, Dec. 16.

On the charts, Dollar Tree, Inc. is currently trading up 0.9% at $82.63, putting the shares almost 7% higher for the year. On the other hand, DLTR is far removed from its Aug. 11 all-time high of $99.93, and is running into resistance at its 80-day moving average, a level that served as support earlier in the year. 

Elsewhere, BKS' 10-day call/put volume ratio across the ISE, CBOE, and PHLX comes in at 3.91 -- albeit amid low absolute volume -- near the top quartile of its 12-month range. Moreover, eight of the 10 options that saw the largest increases in open interest during the past two weeks were calls, led by the December 13 strike. Data from the major exchanges confirms some buy-to-open activity here, suggesting a number of traders are hoping for a breakout above $13 over the next month. 

Puts have the advantage in BKS' options arena today, though. The options are trading at a whopping 17 times what's normally seen at this point in the day -- and with 4,268 puts on the tape, are outpacing calls by a nearly 2-to-1 margin. The most popular option is the December 12 put, where it seems safe to assume options traders are purchasing new positions ahead of the company's earnings release tomorrow morning. 

It's not surprising to see the 12 strike in focus. This level has served as both support and resistance for Barnes & Noble, Inc. throughout 2016, but most recently has emerged as a ceiling for the shares. Still, BKS sports a year-to-date lead of roughly 32%, with the shares last seen at $11.48, after earlier hitting an intraday peak at $11.95. 

Finally, option volume on DSW has been rather light on an absolute basis during the past two weeks, but call buying has had the advantage nonetheless. The stock's 10-day call/put volume ratio across the major exchanges is an eye-popping 14.83 -- and ranks above four-fifths of the past year's readings. 

In today's trading, DSW put options are being exchanged at 13 times the normal intraday rate. At last check, nearly 1,800 DSW puts were on the tape, compared to fewer than 700 calls. The most popular option is the December 17.50 put, followed by the December 22.5 put.

Technically, DSW Inc. was last seen trading up 2.8% at $23.54, as a price-target hike to $25 from $22 at Deutsche Bank overshadows Canaccord Genuity's cautious "hold" reiteration -- with the latter brokerage firm saying it does "not want to get in front of a stock that's attempting to re-train its consumer to shop at full price." Nevertheless, the stock is currently positioned 1.4% below its year-to-date breakeven point.

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