Party City Call Volume Rages on FAANG Partnership

Options traders are favoring 17.50-strike calls on Party City shares

Aug 9, 2018 at 2:33 PM
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Party City (NYSE:PRTY) is in the spotlight today, with the stock catching a lift from a second-quarter profit beat and a high-profile FAANG partnership. Ahead of the bell, the retail outlet announced a quarterly adjusted profit of 40 cents per share, edging past the consensus estimate of 39 cents per share.

And while PRTY's full-year forecast was a little tepid, the retailer one-upped its earnings report by unveiling a pilot program to sell "select product assortments" on Amazon.com (AMZN). The program is set to launch ahead of the Halloween season this year, per a company release, with a focus on costumes -- though Party City anticipates an expansion of its Amazon offerings in time for Christmas, "with further expansion possible in 2019."

PRTY shares are up 3% this afternoon to trade at $16.23, which leaves the stock just south of a familiar ceiling in the form of the $16.50 level. This region has limited the equity's progress throughout 2018 -- though PRTY has managed a series of higher lows recently, aided by the rising support of its 160-day moving average.

prty stock with 160-day moving average

Options traders are responding to today's Party City rally by loading up on call options. Nearly 1,750 calls have changed hands so far, easily outstripping the stock's average daily volume of 179. The out-of-the-money September 17.50 call is most active, as 1,293 contracts have crossed the tape.

While today's options volume on PRTY is unusually heavy, the skew toward calls is business as usual. There are 14,529 PRTY calls in open interest, compared to only 1,162 puts.

However, it's possible some of these calls were opened as hedges by those who are short the stock. PRTY sports a hefty short interest-to-float ratio of 17.2%, and this accumulation of shorted shares represents 8.6 times the equity's average daily trading volume.

Meanwhile, the top two open interest strikes by far are the October 17.50 call, with 10,318 contracts outstanding, and the aforementioned September 17.50 call, which is home to 2,233 contracts. Given that Party City stock hasn't traded above $17.50 since the fourth quarter of 2016, this overhead strike would be a natural location for shorts looking to guard against a breakout.

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