Stitch Fix Bear Places 7-Figure Options Bet, Despite Upgrade

Breaking down a big purchase of SFIX put options

Deputy Editor
Jul 12, 2019 at 12:54 PM
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The shares of online styling service Stitch Fix Inc (NASDAQ:SFIX) are on the rise, after Goldman Sachs upgraded the stock to "buy" from "neutral," commending the company's "product innovation, operational efficiencies, and geographic expansion," as well as its recent brick-and-mortar store closures, which could provide "significant opportunities for further outperformance." SFIX stock is up 4.5% at $29.38, in response, yet one options trader is betting big bucks on a steep decline.

Following a post-earnings bull gap in early June, SFIX shares went on to record a monthly gain of 38.1% -- their best month since August 2018. Since then, the equity has taken a breather atop support in the $28 area, but still remains 66.6% higher year-to-date.

The stock is ripe for even more upgrades from analysts, too, with only two "buy" ratings on the table, compared to seven tepid "holds." A short squeeze could help propel the security higher, too. Short interest has already begun to unwind, down 8.3% in the last reporting period> However, these pessimistic psitions still represent over a quarter of the stock's available float. Plus, at SFIX's average pace of trading, it would take nearly a week to buy back all these bearish bets.

Goldman's bull note has options players taking notice, with over 12,000 calls across the tape so far -- five times what's typically seen at this point in the day. Meanwhile, roughly 7,200 SFIX puts have traded -- eight times the norm.

The most popular option right now is the December 35 put, where a block of 5,000 contracts was bought to open for $8.54 apiece, or a cool $4.27 million (number of contracts x premium paid x 100 shares per contract). By purchasing the puts to open, the buyer will make money if SFIX shares breach $26.46 (strike minus premium paid) by the close on Friday, Dec. 20, when the options expire.

That being said, SFIX's short-term options are attractively priced. The equity's Schaeffer's Volatility Index (SVI) of 45% is in the lowest percentile of its annual range. This means near-term options are pricing in relatively low volatility expectations right now.  

 

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