Rite Aid Stock Runs Lower Ahead of Earnings

Calls are popular in the options pits

Assistant Editor
Jun 24, 2020 at 3:00 PM
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Retail drugstore chain Rite Aid Corporation (NYSE:RAD) is gearing up for its first-quarter earnings report, due out before the open on Thursday, June 25, with the shares taking a mild breather on the charts ahead of the event. At last check, RAD is down 1% at $12.98. With various pullbacks caught just above the $12 region recently, the stock is currently testing the 150-day moving average, which coincides with the $13 level. Looking further out, pressure at the $16 mark is keeping the shares at a 16.5% year-to-date deficit. 


The three analysts covering RAD are at a unanimous "hold" rating. Meanwhile, short interest has risen 9.4% during the last two reporting periods. The 14.72 shares sold short represent 27.6% of the stock's available float, or three days worth of pent-up buying power. 

The high number of calls that have crossed the tape, compared to puts, suggests some of these shorts could be hedging against a potential upside, as RAD sports a 50-day call/put volume ratio of 4.95 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits in the 83rd percentile of its annual range, suggesting options traders are unusually call-heavy.

Today's options pits echo the past 10 weeks, with 10,000 calls across the tape so far, almost three times the 3,245 puts exchanged during this time period. Most popular is the weekly 6/26 19-strike call, expiring this upcoming Friday, where new positions are being opened.

Looking back, RAD saw positive next-day returns after only three of its last eight earnings reports, averaging a swing of 13.9% regardless of direction. This includes a 42.3% pop in December 2019, ahead of RAD's all-time highs. This time around, the options market is pricing in a much bigger move at 20.1%. 




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