Options Update: Option Players Feel Abercrombie & Fitch is Fashionable
Abercrumbling
For no perceivable reason other than the continuation of a long-term downtrend, shares of Abercrombie & Fitch
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ANF |
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News |
PowerRating) are nearly 2.5% lower this afternoon. Trust me, I have searched and searched for news from the trendy retailer, and I have been about as successful as when trying to find something that fits me (or into my budget) on any of ANF’s racks. Nevertheless, the slumping retailer is lower – prompting a rash of option activity.
It is entirely possible that we have some option players aligning themselves ahead of ANF’s earnings report, which is set to be released on expiration Friday (August 15). Whatever the reason, it is this option activity that caught my eye today.
According to today’s Intraday Volume Explosion List, ANF has seen heavy activity on both the put and call sides of the option pits. As for puts, the average daily total volume for ANF is 1,710. That activity has increased nearly 3 times the norm, with 4,749 contracts crossing the tape. Almost all of this activity has taken place on the August 50 put (ANF TJ). On the call side, total activity has increased slightly more than 2.5 times the average. A majority of this activity centered on the August 60 call (ANF HL), which has seen volume of 4,214 contracts.
Digging into the specifics, I would love to think that this activity is connected, but I don’t want to rush to judgment. At 10:01 A.M. EST, a block of 3,786 ANF HL contracts crossed the tape. The price for the transaction fell between the bid and the ask, leaving little hint as to the nature of the activity. Shortly after this transaction, a block of 2,989 ANF TJ contracts crossed at the bid, indicating that the contracts were more than likely sold. Again, I would love to think that these transactions were related, but it is hard to discern the nature of the first transaction, and the fact that the blocks of contracts aren’t identical also makes me hesitant.
Analysts Don’t Buy It
Analysts don’t buy into success from ANF. Currently, 12 of the 17 analysts following the firm rate it a “hold” or worse. Yes, this configuration could lead to upgrades, but such moves would depend on the stock’s technical performance – which we will get to in a moment.
The feeling from option players stands in stark contrast to that from the analyst community. ANF’s Schaeffer’s put/call open interest ratio (SOIR) of 0.48 is lower than 90% of the past year’s worth of readings. In other words, option players have been more bullish on ANF a mere 10% of the time during the past 52 weeks. Again, this could have contrarian implications – depending on ANF’s technical performance.
A Buying Opportunity?
Unfortunately for the option players, it seems that their opinion of ANF is wrong. Simply put, this stock is in the midst of a major slump. Shares of the retailer have shed 31% since January 2008, and I don’t think that this downtrend is a passing fad.
From a long-term perspective, ANF’s 10-month moving average recently completed a bearish cross with its 20-month counterpart. Such a move is often the harbinger of a continued downtrend, and this signal is not what ANF bulls want to see. Yes, it seems that the 50 region may act as support, but can it stand up to another test (the 50 level held as support in 2004 and 2006)?
If there is good news for ANF, it is that both long- and intermediate-term resistance are far overhead. The 10-month trendline is currently dealing with the 70 region, while its weekly counterpart is just approaching the 60 level. Nevertheless, the 10-week trendline, in conjunction with its 20-unit cohort, have helped to depress the stock since last October. Yes, the stock has managed to top these trendlines in the past, but it is going to take quite a rally for that to happen – a rally that I don’t think the stock can make.
The Verdict?
Don’t consider this a buying opportunity. There is far too much potential pessimism lingering in the option pits to fit me. The long-term downtrend for ANF certainly suggests that today’s drop is not a recent fad, but simply the continuation of a classic pattern.
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