Call sellers look for downside in Ann

By David Russell,

Shutterstock photo

Ann is sacrificing margin in the name of growth, but some investors apparently think that the shares will pay the price.

optionMONSTER's tracking systems detected the sale of 20,000 June 28 calls for $1.45. The transaction pushed total option volume in the retail stock to 25 times greater than average.

The activity reflects a belief that ANN is unlikely to rebound in the next four weeks, and essentially locks in an exit price for $29.45 on the shares.

Ann is down 5.2 percent to $28.65 in morning trading after telling investors that its gross margin fell to 57.3 percent in the fiscal first quarter from a record 59.4 percent a year before. Management predicted that it would fall to 55.5 percent in the second quarter as inventories rise.

The women's apparel company, which runs Ann Taylor and Loft stores, also said it would increase back-office spending to open new factory outlet stores.

Investors focused on the rising costs despite management's statements that earnings in the current quarter would be slightly better than analysts had expected. Another factor likely weighing on ANN is a major profit warning from fellow retailer Gap.

That seems to be hurting sentiment across the entire sector, which is today the worst-performing group in the market. That's reflected in a 1.73 percent drop for the SPDR S&P Retail fund (XRT), which until today was one of the best areas in the market in the last two months.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: ANN

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