By Mike Yamamoto of OptionMonster
NEW YORK -- Avon Products (AVP) reports earnings Thursday, and the bears are circling.
OptionMonster's tracking programs detected the purchase of almost 34,000 October 11 puts, most of which priced for 35 cents. Volume was more than 200 times the previous open interest in the strike, which indicates that new positions were opened.
Puts lock in the price where investors can sell the cosmetics stock, so they appreciate when shares drop. Traders can use the instruments to hedge long positions or to wager on a drop.
Avon fell 1.21% to $13.02 yesterday and is down 24% on the year. Hurt by declining sales, leadership scandals, and market-share losses, the company is back to levels last seen in early 2000. Yesterday's option trade will profit from that support crumbling.
Some 49,000 contracts traded overall in Avon yesterday, almost 10 times its daily average for the last month. Puts outnumbered calls by a highly bearish 15-to-1 ratio.Yamamoto has no positions in AVP.
TheStreet Ratings team rates AVON PRODUCTS as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:
"We rate AVON PRODUCTS (AVP) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, generally high debt management risk, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows: