Options bulls enjoyed Gap stock's latest rally
Subscribers to Schaeffer's Weekend Trader Alert doubled their money with our Gap Inc (NYSE: GPS) June 19 call recommendation. Now that this trade has played out, let's dig into how we could tell this would be a winning bet.
At the time of our recommendation on Friday, March 10, the retailer was fresh out of the earnings confessional. In response to the results, the stock traded above a confluence of its 20-, 50-, and 80-day moving averages and broke into positive territory for 2024. GPS had also pulled back to the supportive 20-week moving average.
Despite this impressive performance, analysts remained negative on Gap stock. Of the 20 brokerages in coverage, 15 carried a “hold” or worse rating. And while shorts sellers were in covering mode, short interest still made up 13.1% of the stock’s available float.
Options were affordably priced, as a post-earnings volatility crush sent GPS’ implied volatility (IV) to the 1st percentile of its annual range. The stock tended to outperform options traders’ volatility estimates, per its Schaeffer’s Volatility Scorecard (SVS) that stood at 78 out of 100.
Gap stock has been in rally mode since our recommendation, breaking through a ceiling at the $22 region that capped price action in December and January. Shares earlier hit a more than two-year high of $26.27, and were last seen up 3.4% at $26.26. Our traders' already cashed in on their 100% profit, however, protecting themselves from eventual pullbacks.