Pre-Earnings Put Players Blast Urban Outfitters Stock

Urban Outfitters will report second-quarter earnings after tomorrow's close

Aug 14, 2017 at 11:24 AM
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Retail stocks will continue to be in focus this week, as earnings season within the sector kicks into high gear and monthly retail sales data hits the Street tomorrow. With Urban Outfitters, Inc. (NASDAQ:URBN) slated to report earnings after Tuesday's close, options trading is brisk today, with more than 6,600 contracts traded -- six times what's typically seen, and volume pacing in the 99th annual percentile. Given URBN stock's dismal post-earnings price action, the bulk of the activity is on the put side of the aisle, too.

Specifically, 6,322 puts have changed hands so far, compared to fewer than 150 calls. The majority of the volume has centered at the August 18.50 and September 19 puts, and it looks like one trader may be selling to close the front-month strike, and rolling her bearish bet up and out to the back-month option. Alternatively, this could also be indicative of a speculator initiating a calendar spread.

Regardless, today's heavy put bias just echoes the trend seen among URBN options traders. While the stock's front-month gamma-weighted Schaeffer's put/call open interest ratio (SOIR) of 3.78 indicates near-the-money puts nearly quadruple calls among options expiring at this Friday's close, total put open interest of 74,348 contracts is docked in the elevated 97th percentile of its annual range. 

Drilling down, peak open interest is found at the August 15 put, with 26,918 contracts in residence. Data from the major options exchanges points to a mix of buy- and sell-to-open activity here in recent months. Those buying to open the puts expect URBN stock to breach $15 -- territory not seen since April 2009 -- by front-month options expiration at week's end. Conversely, those selling to open the puts expect the strike to serve as a near-term level of support, or are perhaps hoping for a post-earnings volatility crush.

At last check, URBN was trading up 0.8% at $17.91, but remains a long-term laggard -- down 56% since topping out at an annual high of $40.80 in November. Plus, in the past three quarters, the shares have closed lower in the session subsequent to reporting, averaging a loss of 6.3%. This time around, the options market is pricing in a 17.2% swing for Wednesday's trading, regardless of direction.

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