This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

ANF Options Reaction to new Corporate Structure

TheStreet Premium Services

A complimentary preview
of Options-Profits Previews

The Deal reported that on Tuesday, Abercrombie & Fitch (ANF) took some steps to placate activist investors. The company took chairman duties away from its CEO and eliminated an old "poison pill" provision set to expire in 2018 that would have triggered the issuance of new shares and diluted the position of any activist with sufficiently large holdings.

The company has been struggling recently as teenagers are less interested in paying a premium for the brand's t-shirts. The stock has been trading between $32 and $38 since August 2013. While the lower share price and these conciliatory measures make the company a more attractive target, the company has not yet put forward a turnaround strategy.

So far, the options market has not reacted significantly to the news, with only 4,000 contracts traded by late Wednesday morning. Moreover patterns of overall option pricing in recent weeks suggest that investors are not willing to pay a premium for ANF as a turnaround candidate or as a takeover target. Since 2012, the mean realized one year volatility of the stock has been about 55%. Option implied volatility at a one year expiration has been priced that high on a few occasions, but has averaged closer to 40% since the beginning of 2013. At a closer horizon, we see the same thing: quarterly premiums are priced near 40% in implied volatility terms, versus 46% realized volatility in the shares over the last three months.

If anything, options seem to be priced at a relative discount, which is not a positive sign for shareholders. If market expectations were for a turnaround in the company or that an activist would come in with a respectable bid, we would expect to see options trade at a premium to recent historical volatility. Instead, markets are pricing ANF contracts for more of the same.

OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits

Jared can be followed on Twitter at twitter.com/CondorOptions

EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.

At the time of publication, Jared Woodard held no positions in the stocks or issues mentioned.


Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
Top Rated Stocks Top Rated Funds Top Rated ETFs