Gap Puts Pop As Earnings Loom

Gap reports second-quarter earnings after the close tomorrow

Managing Editor
Aug 21, 2019 at 12:57 PM
facebook X logo linkedin


It's been a rough stretch for the retail sector, with the SPDR S&P Retail ETF (XRT) logging a 25.4% year-over-year deficit, last seen at $39.16. Plus, looking at an internal scorecard compiled by Schaeffer's Senior Quantitative Analyst Rocky White, only 34% of the 85 stocks we track under the "general retailers" umbrella were above their 80-day moving average heading into today.

However, blowout corporate reports from the likes of Target (TGT) and Lowe's (LOW) have lifted retail stocks across the board today. Looking to keep this momentum going will be Gap Inc (NYSE:GPS), with the retailer ready to step into the earnings confessional tomorrow.

Daily ETF Chart XRT

Gap will report second-quarter earnings after the close tomorrow, Aug. 22. Looking at its earnings history, the stock has closed lower the day after earnings in four of the past eight quarters, including a 9.3% drop in May. Over the past two years, the shares have swung an average of 8.5% the day after earnings, regardless of direction. This time around, the options market is pricing in a much larger-than-usual 17.8% swing for Friday's trading. 

As far as options, the stock's Schaeffer's put/call open interest ratio (SOIR) of 4.71 ranks in the 98th percentile of its annual range. Not only does this show that put open interest heavily outweighs call open interest among options expiring within three months, but such a put-skew among near-term traders is very rare. Underscoring this is GPS' total put open interest of 148,812 contracts, an annual high. 

Shifting gears to today, puts remain popular. At last check, almost 9,400 puts have crossed the tape, three times the average intraday amount. Leading the charge is the weekly 8/23 15.50-strike put, where new positions are being opened.

Given GPS' current perch at $16.80 -- up 3.9% thanks to today's halo lift -- buyers of these puts expect a sharp pullback from the stock by the time the options expire this Friday. Sellers, meanwhile, either expect $15.50 to serve as a short-term foothold, or are looking to profit on a post-earnings volatility crush.

On the charts, Gap stock nabbed a nearly eight-year low of $15.22 on Aug. 15. Year-to-date, the shares are down almost 35%, with breakouts thwarted by their descending 60-day moving average. As such, there isn't much optimism to be found around the security; the majority of analysts rate it a "hold" or worse, and 13.5% of its total available float is sold short.

Daily Stock Chart GPS

 

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls

 
 
 


 
 

Rainmaker Ads CGI