Retail News Moves Stock And Order Flow Into Earnings Trend

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

Zentai 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 ~12,000x. The Stats Tab and Day's biggest trades snapshots are included .

The Options Tab illustrates that both the calls and puts are mostly opening . You can latex Hoods 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 .

The trades were naked , at least through the broker; there may have been a hedge after. Looking at the Earnings & Dividends Tab, we can see that buying the ATM straddle one day before earnings and selling it the day of earnings 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 , 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 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 , 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 .

The Skew Tab snap illustrates the vols by strike by month.

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

Finally, the Charts Tab is below . The top portion is the stock price, the bottom is the vol . The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

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

by: ada

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