Citron Nod Fuels Crazy Call Volume on RH

The investment firm compared the RH to Apple

by Andrea Kramer

Published on Jan 24, 2019 at 1:40 PM

The shares of RH Inc (NYSE:RH) -- formerly Restoration Hardware -- are in focus today, after Citron Research set a price target of $250, and predicted at least a 100% return for shareholders over the next two years. The investment firm called RH "the most exciting concept in retail since the creation of the Apple store," and "a company with no peer." Further, the investment firm said it doesn't "believe RH will stay public much longer." Against this backdrop, RH call options are lighting up.

RH stock was last seen 1.6% higher to trade at $132.67, after earlier skyrocketing as high as $145.79. After gapping to a record high of $164.49 in mid-June on a standout earnings report, the equity took a breather, pulling back to the support of its 320-day moving average. The shares have subsequently struggled to retake the $145-$150 area, which is right around where RH landed after the aforementioned bull gap.

RH stock chart jan 24

So far today, about 8,200 RH call options have changed hands -- nine times the average intraday pace, and more than double the number of puts traded. Most popular are the weekly 1/25 and 2/1 130-strike calls, where it looks like bulls are buying to open the contracts. If so, the traders expect RH stock to extend its journey north of $130 within the options' respective lifetimes, with the 1/25 contracts expiring tomorrow, and the 2/1 contracts expiring at the close next Friday, Feb. 1.

Today's appetite for short-term calls certainly marks a change of pace in the options pits. The equity's Schaeffer's put/call open interest ratio (SOIR) of 1.98 indicates that put open interest nearly doubles call open interest among options expiring within three months. Further, the SOIR is in the 91st percentile of its annual range, suggesting near-term traders have rarely been more put-biased in the past year.

Elsewhere, a short squeeze could help RH stock take out recent resistance, should today's Citron call spook the bears. Short interest accounts for 38% of the equity's total available float, representing a healthy seven days' worth of pent-up buying demand, at RH's average pace of trading.

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