Gap stock rose 5.6% to $21.29 as 21,000 calls and 14,000 puts changed hands ahead of the company’s second-quarter earnings report. The options flow pointed to a large move after Thursday, Aug. 27, while the shares were still down 17% year to date.
21,000 calls versus 14,000 puts made the call side the heavier trade, with the weekly 9/4 21-strike put the most active contract. The September 24 calls and September 22 calls were close behind, and new positions were opening at the September 22 calls, showing that traders were not simply closing out old bets.
Gap stock and the 17.7% move
17.7% was the implied post-earnings move traders were pricing in, regardless of direction, versus an 11.6% average reaction over the last eight quarters. Gap stock finished higher after four of those eight reports, but the two most recent reactions were negative, including a 15.4% drop in late May.
3.00 was the 50-day call/put volume ratio at the International Securities Exchange, Cboe Options Exchange and NASDAQ OMX PHLX over the past 10 weeks, meaning calls have tripled puts across that stretch. That backdrop helps explain why the options tape was already busy before the earnings release: traders had been leaning toward calls even before today’s burst in volume.
NYSE:GAP at $21.29
$21.29 put the shares near the 80-day moving average, which had capped gains in May and early August. The stock’s 5.6% jump lifted it toward that level, but the 17% year-to-date loss kept the broader trend negative even after the session gain.
50 cents per share on $3.72 billion in revenue was the analyst view from Zacks Research, with earnings expected to fall 12.3% from a year earlier and revenue seen edging lower. For shareholders, the immediate read was not just the earnings estimate itself but the size of the reaction traders were preparing for before the close on Thursday, Aug. 27.
Gap earnings after the close
13.3% short interest in GAP left nearly four days’ worth of potential buying power in the market, adding another layer to the trade setup before the report. Whether the options flow reflected bullish or bearish conviction is not fully explained beyond the active contracts listed, and that is the unresolved piece heading into the release after the close.
