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Tiffany & Co. Call Buying Ramps Up Ahead of Earnings

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Fine jewelry specialist Tiffany & Co. ( TIF ) has seen a flood of call buying heading into the company's earnings report. The firm is slated to step up to the earnings podium before the start of trading tomorrow morning, with analysts expecting a profit of 36 cents per share. Last year, TIF posted a profit of 33 cents per share for the same quarter. Historically, the company has been steady from fundamental perspective, missing Wall Street's expectations only once, and besting the consensus estimate three times in the prior four reporting periods, for an average upside surprise of 19%.

Options traders appear to have set the bar pretty high for TIF heading into the report, as the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.02 ranks below 99% of all such readings taken in the past year. In other words, options traders have been more bullishly aligned toward TIF only 1% of the time in the prior 52 weeks.

What's more, data from the International Securities Exchange (ISE) and Chicago Board Options Exchange ( CBOE ) indicates that call buying has dominated the landscape in TIF's options pits heading into the event. In fact, during the past 10 trading sessions, calls bought to open have more than doubled puts purchased. The current ISE/CBOE 10-day call/put volume ratio of 2.19 ranks higher than 98% of all those taken during the past year, pointing to a rapidly growing sense of optimism ahead of the company's quarterly report.

On the other hand, much of this call volume could have been tied to the recent spike in short selling on TIF. During the past month, the number of TIF shares sold short rose by nearly 7% to roughly 16 million shares. Given that this rise in short interest took place in tandem with a similar spike in call buying, we could be witnessing short sellers hedging their positions prior to TIF's quarterly report. That said, this respectable level of short interest still represents potential fuel for a short squeeze situation, should the company's earnings report find a warm reception.

Wall Street, however, is sending out mixed signals on TIF. On one hand, Zacks reports that the equity has earned 12 "buy" or better ratings, compared to just four "holds," and no "sell" ratings. On the other hand, Thomson Reuters reports that the 12-month consensus price target for the stock rests at $56.79 per share - a discount to TIF's current trading range near $57.40. As yesterday's price-target increases at Caris and Barclays, to $65 and $64 per share, respectively, indicate, there is plenty of room left on the bullish bandwagon. Investors should still keep an eye out for the odd ratings downgrade should TIF fall short of expectations with its quarterly report.

Technically speaking, TIF has rallied more than 33% since the start of 2010. On a short-term basis, the shares have remained in a steady uptrend since setting a near-term bottom near the $40 level in late August, tagging a fresh all-time high of $59.59 on Monday following the aforementioned pair of price-target increases. Throughout this rally, TIF has enjoyed the solid support of its 10-day and 20-day moving averages. Amid today's broad market sell-off, TIF has pulled back to support at the former of these trendlines.

That said, the stock is still staring up at potential resistance in the round-number $60 level. This region is also home to more than 9,000 call contracts in the December and January 2011 series, creating a layer of potential options-related resistance. Unless TIF can spook short sellers into stampeding for the exits, the stock's post-earnings upside could be limited, even in the event of a better-than-expected report.

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

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

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