If the options fit

A little more than three weeks ago, Ralph Lauren (RL) landed on multiple LiveAction scan for unusual options activity, thanks mostly to a 16,400-contract trade in the February $90 puts that represented nearly $148 million of the underlying stock (see “Retail stock, wholesale volume”).

At the time, the company was scheduled to release earnings today, a date that was subsequently pushed back to February 9. Since then, RL extended its rally another 12% or so, hitting its highest level in nearly a year and running its year-to-date gain to more than 20%:

That put shares nearly $10 above the average Street analyst target.¹ Meanwhile, the February $90 puts, which closed at $0.75 on February 9—the day of the 16,400-contract trade—were trading at $0.05 yesterday—a roughly $1,148,000 profit or loss, depending on whether the party who initiated the position was short or long:

Interestingly, even though RL has moved quite a bit to the upside over the past few weeks, traders have remained more active in puts than calls. On Wednesday another big trade—15,000 of the April $90 puts (representing $135 million worth of stock) crossed the tape even as the stock rallied more than 3%. Here are a few highlights of the positions in the next three expirations (February, March, April):

1. Overall, total put positions outnumbered call positions approximately 14 to one (55,985 to 3,992).
2. Approximately 99% of the puts were out of the money (strike prices below the current stock price), while just 42% of the calls were out of the money (strike prices above the current stock price).
3. In addition to the positions in the February and April $90 puts, there were also large positions in the March $110 puts (8,300), and the April $100 puts (8,100).

The following chart shows a snapshot of RL’s past six earnings-day moves, along with the options market’s estimate for how much it will move after next week’s release:

As the purple and yellow dashed lines suggest, the options market has, on average, tended to overestimate the size of RL earnings moves. Also, these volatility-based estimates say nothing about which direction a stock may move.

Either way, there appear to be some large traders with a heavy interest in which way RL will move—and by how much—in the near future. Those February $90 puts will, for example, expire worthless in two weeks unless RL falls round 30% from Thursday’s levels.

Market Mover Update: Facebook parent Meta Platforms (META) jumped more than 28% intraday on Thursday in the wake of its earnings release.

Today’s numbers include (all times ET): Employment Report (8:30 a.m.), S&P Global Services PMI (9:45 a.m.), ISM Services Index (10 a.m.).

Today’s earnings include: Aon (AON), Cigna (CI), Cboe Global Markets (CBOE).

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¹ TipRanks. Ralph Lauren (RL) Stock Forecast & Price Target. 2/2/23.