Bearish Traders Target VF Corp Ahead of Earnings

VFC shareholders may be picking up options insurance

Oct 24, 2019 at 1:46 PM
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Options traders are blasting VF Corp (NYSE:VFC) today, as the retailer gets ready to report earnings tomorrow morning. At last check, 7,527 puts were on the tape, 37 times what's typically seen at this point, and a new 52-week peak. Call traders are busy, too, with around 2,400 contracts exchanged, quadruple the expected intraday amount.

Diving deeper, the bulk of the action has occurred at the weekly 11/1 82-strike and 86-strike put, with one trader possibly initiating a long put spread ahead of earnings. More specifically, it looks like a speculator bought the 86-strike puts for $1.10 each, and simultaneously sold the 82-strike puts for $0.35 apiece, bringing their initial net debit to $0.75 per pair of contracts.

By combining the sold strike with the bought one, the spread strategist effectively lowered their cost of entry -- and minimized the effect of a pre-earnings implied volatility spike -- while also lifting their breakeven point to $85.25 (bought strike less net debit). Had the bearish trader just bought the 86-strike put outright, VFC would need to breach $84.90 (strike less $1.10 premium paid) for profits to begin adding up. On the flip side, they've also limited their reward to $3.25 per spread (difference between the two strikes, less the net debit), no matter how far VFC may fall over the next week.

Bearish betting has been ramping up in VF Corp's options pits in recent weeks. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.08 registers in the 76th annual percentile, meaning puts have been bought to open over calls at a quicker-than-expected clip.

While some of this activity may be at the hands of traditional bears, it's also possible shareholders are protecting paper profits against any downside risk. VFC stock has surged nearly 18% since a mid-August bounce off the $77 region -- home to a January bull gap -- and hit a record high of $93.88 this past Tuesday, Oct. 22. Today, the shares are down 1.4% at $90.22, but finding support at their 20-day moving average.

Meanwhile, VF Corp has a mixed history of earnings reactions, having closed higher the session subsequent to the retailer's results in four of the past eight quarters -- including a 1.2% rise in July. The shares have averaged a next-day post-earnings move of 6.2% over the last two years, roughly in line with what the options market is expecting for tomorrow's trading.

vfc stock daily price chart on oct 24


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