Put Buyers Make a Killing with Signet Jewelers Sell-Off

Put buying on SIG surged in recent weeks

Signet Jewelers Ltd. (NYSE:SIG) is one of the biggest losers on Wall Street this morning. The stock was last seen trading down 23.2% at $25.63 -- fresh off a nine-year low of $25.51 -- after the company cut its fourth-quarter and full-year forecasts due to a weak holiday season. One reason given for the poor performance was a sharp drop in traffic at brick-and-mortar stores. The shares are trading at their lowest point since late 2009, and this price action is likely putting paper profits in the hands of recent options traders.

SIG's 10-day put/call volume ratio across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) jumped to 15.31 from $1.75 during the past week, with the current reading in the 100th annual percentile. Or to put it another way, more than 15 long put options were purchased for every call.

The weekly 1/25 35-strike put saw the largest increase in open interest during the past 10 days, and the traditional January 2019 32.50-strike put was close behind. Data confirms heavy buy-to-open activity at both these strikes, so traders were wagering on a short-term pullback from Signet Jewelers.

Other skeptical traders may have given up on their bets too soon. That is, short interest on the security fell by 22.5% in just the last two-week reporting period. Still, almost 13% of SIG's float remains in the hands of short sellers. Because the stock has dropped more than 10% today, it's earned a place on the short-sale restricted list, so prospective bears may need to consider more put buying for the time being.

It's been a dramatic decline for the retail concern. It was able to top the $70 level back in August, but quickly gave back those gains, and suffered a nasty bear gap in early December. All nine covering brokerage firms have tepid "hold" ratings, though price-target cuts could still come through, since the average 12-month price target stands up at $43.38.