By Jud Pyle, CFA, chief investment strategist for the Options News Network
Abercrombie & Fitch
should be releasing Same-store sales data in a little more than a week, on Thursday, March 5. Same-store sales can be a catalyst for big moves in the stock prices of all sorts of retailers. But today, at least one investor was using options to express a view that any movement in ANF will be limited.
Looking at the March 22.50 calls and puts, we find that more than 9,800 of each have traded in the first four hours of trading. Open interest in the calls was only 2,402 and for the puts 1,846, according to the
These puts and calls were sold simultaneously as part of a trade that is known as a straddle. The investor collected a total of about $3.25 to sell both the call and the put.
So why might the investor be selling this straddle? Well, for starters, because the investor collected $3.25 and the strike is $22.5, the breakeven range for where the sale is profitable is $19.25 to $25.75. Since bottoming out at $14.15 on Nov. 20 after being as high as $80, the shares have actually been in a reasonably tight range since then. The shares have not closed many days below $20, nor have they breached the $25 level.
Investors who have long or short positions in ANF would at least pay attention to this activity. The seller of this straddle will not necessarily always be right, but it is at least worth noting that someone is willing to bet on a continued range for ANF. Any investors expecting a big move in the stock should think twice.
Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."