Call Buying Spikes on Jo-Ann Stores Inc. Ahead of Earnings

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Jo-Ann Stores Inc. ( JAS ) is slated to release its quarterly earnings report after the close of trading today, with Wall Street expecting a profit of $1.07 per share from the specialty crafts retailer. The figure represents a solid improvement over the company's profit of 90 cents per share in the same quarter last year. Historically, Jo-Ann Stores has been quite impressive from a fundamental perspective, besting Wall Street's expectations in each of the prior four reporting periods by an average of more than 237%.

Judging from JAS' sentiment indicators, however, it would seem that investors have set their sights considerably higher for the company's quarterly report. For instance, options traders on the International Securities Exchange (ISE) and Chicago Board Options Exchange ( CBOE ) have purchased more than 51 calls for every one put during the prior two weeks. As a result, JAS' 10-day ISE/CBOE call/put volume ratio of 51.40 rests at an annual peak, meaning that investors have not bought to open calls at a faster rate than puts during the past year.

Reaffirming the ISE and CBOE's data, JAS' Schaeffer's put/call open interest ratio (SOIR) of 0.55 arrives at an annual low. In other words, near-term options traders have not been more bullishly aligned toward JAS during the past year, pointing toward an extreme level of optimism among the speculative group.

Checking in with JAS' open interest configuration, we find that options traders are focusing heavily on the December 45 and 50 strikes. Currently, 1,544 December 45 calls and 223 December 45 puts are open, while the December 50 call sports open interest of 417 contracts. JAS bulls should keep an eye on the December 50 strike, as call open interest at this contract could create a layer of options-related resistance for the security.

December OI chart for JAS

That said, some of JAS' calls may have been purchased as hedges for short positions. Currently, more than 10% of the stock's float is sold short, creating ample fuel for a short-covering rally. What's more, with the number of JAS share sold short dropping by more than 14% during the past month, it would seem that these bears are growing increasingly wary of the stock's price action. A continuation of this trend could increase buying pressure on the equity, especially if JAS tops Wall Street's earnings expectations once again.

Turning toward the brokerage bunch, we find that analysts have joined options traders in the bulls' camp. According to Zacks , six of the seven analysts following JAS rate the shares a "buy" or better, with nary a "sell" rating to be found. This bullish configuration should be viewed with caution, as its creates the potential for downgrades in the wake of a poorly received quarterly earnings.

Technically speaking, JAS has earned its bullish following honestly, with the shares soaring more than 30% since the start of the year. What's more, the equity broke out above long-term resistance in the $47.50-$48 region on Tuesday. This area could now provide a springboard of support for JAS. Meanwhile, long-term investors should take heart, as the stock also enjoys solid support at its 10-week, 20-week, and 50-week moving averages.

Weekly chart of JAS since March 2009 with 10-week, 20-week, and 50-week moving averages



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This article appears in: Investing , Options

Referenced Stocks: CBOE , JAS

Schaeffer's Investment Research

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