Options Traders Cash In as Finish Line Stock Nosedives

Finish Line stock is selling off after an earnings miss, and options traders are cashing in their winning bets

Mar 24, 2017 at 3:13 PM
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Finish Line stock is getting demolished today, last seen 18.6% lower at $13.07, after the footwear retailer reported disappointing fourth-quarter earnings. In fact, the shares earlier touched a six-year low of $12.63, extending their string of erratic post-earnings price action and earning a spot on the short-sale restricted list. While this is terrible news for shareholders, data suggests some options traders are making a killing on FINL stock's sell-off. 

By the numbers, the April 16 put was the most popular option during the past two weeks, with more than 3,300 contracts added to open interest. Trade-Alert data shows a huge increase in open interest on March 21, when the option was being offered for around $1. Today, with put volume running at 19 times the intraday norm and already at an annual high, International Securities Exchange (ISE) data confirms traders are liquidating positions at the April 16 put -- the most active FINL option -- with the bid price standing at $2.55. As such, the aforementioned put traders may have scored a profit of around 150% in just three days. 

While these bearish traders seemingly placed well-time bets, other traders weren't so lucky. Specifically, short interest on FINL stock declined by nearly 25% over the past two reporting periods. At the same time, short interest is still elevated on Finish Line. Around 15% of the stock's float remains sold short, which would take over a week to buy back, based on FINL's average daily volume. 

Elsewhere, analysts already had a downbeat outlook on FINL stock. Of the 15 brokerage firms covering the stock, just two recommend buying the shares. Meanwhile, Jefferies and Cowen this morning both lowered their respective price targets to $19 and $14. Still, Finish Line has an average 12-month price target of $18.55, suggesting additional price-target cuts could come through in the near future and apply even more pressure on the equity. 

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