Bearish Options Bets Pile Up Ahead of L Brands Earnings – Schaeffers Research (blog)

Retailer L Brands Inc (NYSE:LB) is set to report second-quarter earnings tomorrow evening, as part of a slew of retailers in the earnings spotlight this week. Investors are keeping an eye trained on the retail stock, which has historically made respectable post-earnings moves, and is typically one of the best stocks to own after a CBOE Volatility Index (VIX) spike. Below, we will break down LB stock’s post-earnings history, and examine how analysts and options traders are playing the retail stock.

L Brands has a solid track record lately after earnings releases. LB stock averages a one-day move in either direction of 4.7% in the session following its last eight earnings releases. Furthermore, the move has been positive five of the last eight times. Back in May, LB stock gained 2.7% following its earnings release.  

The retail stock, which is currently down 2.7% to trade at $39.45, and earlier hit a five-year low of $39.22, has had a tough year, shedding 40% year-to-date. This has the shares below the $41.16 level, which represents a 61.8% Fibonacci retracement of the stock’s 2009 lows and 2016 highs — even after reports yesterday that David Tepper’s Appaloosa Management has taken a stake in the retailer. 

Meanwhile, options are flying off the shelves today ahead of earnings, with both calls and puts are trading at three times the pace expected today. The most popular option is the August 40 put, followed by the August 35 put. While data isn’t clear, it looks like one trader may have closed a large block of the former contract to buy the 35 puts — rolling down his bet ahead of earnings. Meanwhile, it also looks like new positions are being opened at the September 37.50 put. 

This preference toward puts is nothing new. LB stock sports a Schaeffer’s put/call open interest ratio (SOIR) of 1.93, which ranks 5 percentage points from a 52-week high. This means that near-term options traders have rarely been more put-heavy during the past year.

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