Abercrombie & Fitch (NYSE: ANF, $28.46) hasn’t been stylish for investors in 2014 – share are off by 13.5% year to date. The stock is scheduled to report earnings prior to the open of Wednesday’s session, with consensus analyst estimates calling for $0.41 EPS on $916.03 million of revenue. One year prior, the company posted EPS of $0.45 (a beat of $0.07) on $1.03 billion in revenue.
ANF stock has traded in a 52-week range of $28-$45.50, clocking its intraday high on August 27. The stock has fallen following 2 of its past 4 earnings reports, and 5 of the past 8. ANF stock has weekly options, offering traders the opportunity to further isolate earnings catalyst movement. The market on the ANF Dec Weekly 28.5 Straddle is $2.70-$3.01, and thus is implying a move of roughly 10.1%. This is slightly below the 10.8% mean move seen over the past 8 quarters.
While recent retail earnings have been relatively strong, Black Friday numbers have been estimated to be poor and could upset ANF guidance. Some have estimated Black Friday spending to be 11% lower than in 2013, which could be particularly disruptive to the budget conscious teen shopper.
ANF Bulls could take heart in the possibility the stock is oversold, but I would not look to allocate risk capital to anything but a short position.
My Trade: Buy the ANF Dec Weekly 26.5-25.5 Put Spread for about $0.25
Risk: $25 per 1 lot
Reward: up to $75 per 1 lot
Break-even stock price at expiration: $26.25
Greeks of this Trade
Delta: Short
Gamma: Long
Theta: Short
Vega: Long
I like this trade because it offers a favorable return on my money, with my downside price target aligned with the measured move target.
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