Puts in play with earnings in sight
- FND put volume elevated on Wednesday
- Stock trading a little below its six-month highs
- Earnings scheduled prior to Nov. options expiration
Wednesday’s LiveAction scans highlighted an interesting trade in a somewhat under-the-radar retail stock.
Early Wednesday, home improvement chain Floor & Decor (FND) had the day’s highest put-call ratio, with put volume a little more than 15 times call volume:
Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation. Note: It's not possible to invest directly in an index.)
While there were a couple of options with volume of more than 100 contracts, FND’s appearance on the scan stemmed from a 4,253-contract trade in the November $95 puts. If today’s open interest (OI) is at that level or higher (it stood at 176 contracts yesterday), it would be the third-highest OI for any FND option, put or call.
With FND’s next earnings announcement currently scheduled for the end of the month, it’s worth noting the two options with higher OI were also out-of-the-money (below the current stock price) puts—the October $100 (5,300 contracts) and the November $85 (4,700 contracts). These strike prices roughly correspond to the upper and lower boundaries of the stock’s July–August consolidation:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
The $95 strike price is toward the middle of that range, which is a little more than 20% below where the stock was trading on Wednesday. The average Street analyst 12-month price target stood at $99.53 on Wednesday.1
While traders don’t necessarily hold options until they expire, expiration offers a useful reference for the dynamics at work in an options position. In this case, traders who bought the $95 puts would be holding valueless contracts at expiration (November 15) unless FND was trading below the strike price. The options could certainly gain value between now and then if the stock declined, but they will also lose some value every day, regardless, because of time decay.
On the other side of the ledger, traders who sold the November puts would keep the premium they collected as long as FND closed above $95 at expiration, assuming they hadn’t already been assigned the stock. With a trade price of 0.92, or $92 per contract, Wednesday’s activity represented $391,276 in total premium.
Regardless of whether Wednesday’s activity was initiated as a hedge for a long stock position or a directional trade, that’s not insignificant for a position with a time horizon of just over six weeks.
Market Mover Update: After a 3%-plus rally on Tuesday amid heightened Middle East turmoil, November WTI crude oil futures (CLX4) jumped an additional 2.4% intraday on Wednesday (to a one-month high of $72.49) before pulling back below $71 and closing in the lower portion of the day’s range.
Today’s numbers include: Challenger Job-Cut Report (7:30 a.m.), weekly jobless claims (8:30 a.m.), S&P Global Services PMI (9:45 a.m.), ISM Services Index (10 a.m.), Factory Orders (10 a.m.), EIA Natural Gas Report (10:30 a.m.).
Today’s earnings include: Constellation Brands (STZ).
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1 TipRanks. Floor & Decor Holdings (FND) Stock Forecast & Price Target. 10/3/24.