What one bear sees in AnnTaylor

By David Russell,

Shutterstock photo

AnnTaylor Stores has rallied hard off a six-month low, but one trader is looking for a push back to the downside.

optionMONSTER's Depth Charge tracking system detected the purchase of about 2,700 October 17 puts for $1.10 and the sale of an equal number of October 17 calls for $1.30. The transaction resulted in a net credit of about $0.20, and volume was more than 10 times open interest in both strikes.

ANN Chart ANN rose 2.61 percent to $17.27 in afternoon trading and is up 11 percent in the last week. The women's fashion retailer reported earnings in line with analysts' estimates on Aug. 20, though management guided full-year revenue expectations toward the low end of its previous forecast.

The stock spent two months grinding against support at $15 before a rally last week put the shares above their 50-day moving average (black line on chart) for the first time since early May.

Today's option trader apparently thinks ANN will retest those recent lows. The strategy, also known as a bearish risk reversal or a synthetic short, will make unlimited profits if the stock falls below $17. It will lose money above $17 if it was done naked.

The trade was probably implemented by a shareholder who's willing to accept a maximum exit price of $17.20 while hedging a drop back below $17--an example of how investors can use options to eliminate risk and lock in desired outcomes. (See our Education section)

Overall options volume in ANN is 9 times greater than average so far today.

(Chart courtesy of tradeMONSTER)

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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