Retail Stock Expands CBD Partnership

There's tremendous pessimism priced into ANF at the moment

One retailer is going all-in on the CBD buzz. Earlier today, Abercrombie & Fitch Co. (NYSE:ANF) expanded its partnership with Green Growth Brands to sell cannabidiol (CBD) products products in over 160 Abercrombie stores. Green Growth and Abercrombie initially inked a 10-store deal back in May.

Despite the news, Abercrombie & Fitch stock is down 0.4% to trade at $15.78. ANF was cruising for most of 2019, nabbing an annual high of $30.63 on May 3. The shares suffered a brutal earnings-induced bear gap in late May though, and haveshed 42% this quarter alone. Since then, the $16 level has emerged as resistance, an area that coincides with its descending 20-day moving average.

The overwhelmingly bearish sentiment among analysts before earnings last month has proven prophetic. All 12 of the brokerages covering ANF rate it a "hold" or worse, with zero "buys" on the books. The same can be said for short sellers. Short interest increased by 11.3% in the most recent reporting period to 15.13 million shares. This accounts for 22.8% of ANF's total available float, and 5.5 times the average daily trading volume.

In the options pits, calls have reigned supreme. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), 7,230 calls were bought to open in the past two weeks, compared to just 714 puts. While some of this activity is likely at the hands of traditional options bulls, it's also possible shorts have been initiating an options hedge against any additional upside risk, given the short interest tied up in the stock.

Regardless of direction, short-term options can be purchased for a bargain at the moment. The equity's Schaeffer's Volatility Index (SVI) of 50% is in the 18th percentile of its annual range, suggesting near-term options are pricing in relatively low volatility expectations for ANF shares.