ANF - Retail News Moves Stock and Order Flow into Earnings Tren

Discussion in 'Options' started by livevol_ophir, Jul 8, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    ANF is trading $35.27, up 7.2% today on retail numbers with IV30&#8482 down 4.0%.

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    Retail numbers were reported today; here's a snippet from the AP regarding ANF:

    Abercrombie & Fitch Cos. said its revenue in stores open at least a year rose 9 percent, breezing past analysts' expectations of a 2.8 percent rise. Shares rose $2.53, or 7.7 percent, to $35.43 in midday trading. The stock has traded between $22.70 and $51.12 over the past year.

    The company has traded over 56,000 options on total daily average option volume of just 10,995. The largest trades were Aug 32/38 risk reversal (sell puts/buy calls) ~12,000x. The Stats Tab and Day's biggest trades snapshots are included (<a href="">in the article</a>).

    The Options Tab (<a href="">in the article</a>) illustrates that both the calls and puts are mostly opening (compare OI to trade size). You can also see that earnings are in the August cycle so Aug vol is elevated. Jul vol is down 9.3 points, Aug is down just 1.2 and Nov is down just 0.1 (see top of Options Tab).

    The trades were naked (no stock), at least through the broker; there may have been a hedge after. Looking at the Earnings & Dividends Tab (<a href="">in the article</a>), we can see that buying the ATM straddle one day before earnings and selling it the day of earnings (after the morning release) was a winner the last three cycles.

    The top charts are the stock price five trading days before earnings through five trading days after. The bottom charts are the ATM straddle values (same time horizon), where purple is the front month and yellow is the second month. I have drawn vertical lines on each of the last three cycles - look how the purple line (bottom charts) has gone up each time in that range.

    For the 11-13-09 and 2-16-10 cycles, the stock went up. For the last earnings cycle (5-18-2010), the stock dropped. The bets today are bullish, but close to premium neutral as they paid ~$0.10 more in the calls than they sold in the puts. It's essentially vol neutral as well; it could be a big winner if ANF stock moves big for the fourth consecutive time on earnings as long as it's an up move (down could be devastating).

    The Skew Tab snap (<a href="">in the article</a>) illustrates the vols by strike by month.

    I've highlighted the two strikes in play. As would be expected, the puts (sold) are slightly higher vol than the calls (bot).

    Finally, the Charts Tab (6 months) is below (<a href="">in the article</a>). The top portion is the stock price, the bottom is the vol (IV30&#8482 - red vs HV20&#8482 - blue). The yellow shaded area at the very bottom is the IV30&#8482 vs. the HV20&#8482 vol difference.

    We can see how far ANF has fallen since mid March (nearly 40%). We can also see the recent turn around and gap up today on the retail news.

    This is trade analysis, not a recommendation.

    Details, trades, prices, vols, skews, charts here: