Short-term SKX volatility expectations are soaring
Skechers USA Inc (NYSE:SKX) stock is hot today, with some pointing to buzz surrounding a potential takeover of the footwear firm by North Face parent VF Corp (VFC). Whatever the reason, SKX shares were last seen up 5.8% to trade at $26.81, and options traders are in overdrive.
Most recently, around 36,000 calls and 10,100 puts had changed hands on Skechers -- 28 times what's typically seen at this point. Short-term volatility expectations are skyrocketing, too, with SKX's30-day at-the-money implied volatility surging 23% to an annual high of 79.4%.
Last-minute bulls appear to be buying to open the January 2019 26-, 28-, and 30-strike calls, which expire at tomorrow's close. Elsewhere, the weekly 2/8 28.50-strike call is active, and it looks like speculators may be purchasing the calls for a volume-weighted average price of $2.13. If this is the case, breakeven for the call buyers at the close on Friday, Feb. 8 -- a time frame that includes the retailer's Feb. 6 earnings report -- is $30.63 (strike plus premium paid).
Today's call-skewed session marks a change of pace for SKX options traders. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.02 ranks in the 85th annual percentile, meaning puts have been bought to open over calls at an accelerated clip.
This skepticism is seen in other corners of Wall Street, too, with seven of 12 analysts maintaining a "hold" recommendation. Plus, a healthy 9.2% of Skechers float is sold short, or 4.6 times the average daily pace of trading.
Looking at the charts, it's not hard to see why there's so much pessimism priced in. The shares have been stuck in a downtrend since a late-April post-earnings bear gap, culminating in a two-year low of $21.44 on Dec. 24. While SKX has bounced from here and is now trading above a trendline connecting lower highs since mid-October, it's also rallied right into its historically bearish 160-day moving average.
