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 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
(Chart courtesy of tradeMONSTER)
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