It's a busy week for retail earnings, with Abercrombie & Fitch Co. (NYSE:ANF) set to release its results ahead of Friday's open. The shares have a history of making volatile post-earnings moves. Over the past eight quarters, ANF stock has averaged a one-day swing of 14.9% in the session subsequent to the report -- including a 17.1% one-day pop in August. This time around, the options market is pricing in a 18.6% move for Friday's trading, based on at-the-money (ATM) implied volatility (IV) data, and options traders are targeting a key level ahead of the potentially explosive event.
Specifically, the December 15 call has seen the biggest rise in open interest over the past two weeks, with 8,709 contracts initiated. Data from Trade-Alert points to a mix of buy- and sell-to-open activity here in recent weeks.
Those initiating long calls expect ANF to break out above $15 by expiration at the close on Friday, Dec. 15. On the flip side, those writing the calls are betting on the strike to hold as a near-term ceiling, though they also may be looking to profit on a post-earnings volatility crush.
More broadly speaking, call buying has been unusually popular across the major options exchanges over the past 10 sessions. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), ANF has racked up a 10-day call/put volume ratio of 2.41 -- higher than 97% of all comparable readings taken in the past year. In other words, calls have been bought to open over puts at a faster-than-usual clip.
While it's possible that some of this activity is of the bullish kind, it could also be indicative of short sellers initiating options hedges ahead of the company's early morning turn in the earnings confessional on Friday. Despite edging lower in the most recent reporting period, a whopping 22.36% of ANF stock's float is sold short.
Whatever the reason, premium on ANF's short-term options is inflated at the moment, considering elevated volatility expectations are being priced in ahead of earnings -- making it a better time to sell contracts than buy them. In fact, the stock's 30-day ATM IV hit a 52-week high earlier, and was last seen at 79% -- in the 99th annual percentile.
Looking at the charts, Abercrombie & Fitch shares have struggled long term, down nearly 22% year-over year. More recently, the stock has come off its mid-July 17-year low of $8.81, though this rebound was cut short near $15 -- a roughly 23.6% Fibonacci retracement of ANF's plunge from March 2016 to July 2017, and a level that's kept a tight lid on the shares since mid-December. Nevertheless, the stock's early November bear gap was contained near $11.60, home to the late-August bull gap highs, with ANF last seen at $12.63, up 2% on the day.