The $1.5 Million Options Trade on GNC Stock

GNC Holdings Inc (GNC) stock is suffering another huge loss, ahead of next week's earnings release

Feb 6, 2017 at 1:48 PM
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Shares of Super Bowl reject GNC Holdings Inc (NYSE:GNC) are sinking ahead of next Thursday morning's earnings report. The stock's put options are flying at 16 times the expected intraday rate, too, which has sent its 30-day at-the-money implied volatility to a 12-month high of 112.7%. According to Trade-Alert, the preference for puts is being driven by one speculator setting up a huge pre-earnings hedge.

Drilling down, a block of 9,397 February 10 puts was bought to open for an initial cash outlay of over $1.5 million ($1.65 premium paid * number of contracts * 100 shares per contract). Trade-Alert suggests that the in-the-money options -- which expire two sessions after GNC reports earnings -- may have been purchased by a shareholder nervous about another post-event sell-off.

GNC's earnings history is instructive. Following four of the past five quarterly data releases, the stock has stumbled sharply in the ensuing session -- losing 26.6%, on average. (Right now, the options market is pricing in a roughly equivalent move, in either direction.) Not only would a repeat performance land GNC shares at all-time lows, it would extend their year-over-year deficit. Down 6% this afternoon at $8.48, the supplements retailer has surrendered two-thirds of its value over the past 12 months.

Given that GNC's been stair-stepping lower for more than a year, it's hardly surprising to note that put players have been pouncing -- even before today. The stock's 10-day put/call volume ratio stands at a top-heavy 2.86 across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), in the put-skewed 88th annual percentile. Echoing this, the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.29 sits only 1 percentage point from a 52-week high.

Options traders aren't the only ones bearish toward GNC. All eight analysts tracking the shares have doled out a "hold" or worse rating. Plus, 16.4% of the stock's float is sold short -- roughly equivalent to its April 2013 all-time peak. At GNC's average trading volume, it would take a week to cover these positions.

While GNC Holdings Inc's (NYSE:GNC) charts and earnings history both hint at extended losses in the not-too-distant future, the stock could actually get a brief respite. With today's sharp slump, the stock's 14-day Relative Strength Index (RSI) has fallen to 27.7, in "oversold" territory.

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