Options activity is surging as beaten-down VF jumps and traders unwind bearish positions.
The owner of brands like Vans and The North Face rallied 7 percent yesterday after earnings and revenue beat expectations. It was the company’s second big surge in the last two months, potentially suggesting it may have turned around following years of declines.
Volume in call options also spiked as potentially bullish positions were rolled higher.
In one transaction, 15,000 August 16.50 calls were sold for $2.12. An equal number of August 18 calls were bought for $0.97. Volume was below open interest in the 16.50s but not the 18s, which suggests an existing position was sold and some of the money was moved up to the higher strike. Making the adjustment would have generated a credit of $1.15, excluding commissions.
The second transaction focused on weekly calls expiring tomorrow. A block of 5,000 9-August 17 calls traded for $1.58, plus 5,000 9-August 18 calls for $0.75. That would translate into a credit of about $0.83.
Rolling Calls
Calls fix the price where a security can be purchased. They can appreciate sharply in value when shares rally but also become worthless if a stock fails to advance.
The lower-strike calls sold yesterday jumped more than 50 percent after the underlying stock rallied. Rolling to the higher strikes let the traders lock in some of those profits while remaining exposed to further upside if the shares continue higher. (It also lowered their delta while increasing their gamma.)
VFC started struggling in 2022 as weaker demand for Vans hurt profit margins. The stock lost more than 80 percent of its value through May, when it started turning higher. Management has been cutting costs and selling assets to reduce debt. Last month, for example, it jumped after unloading its Supreme apparel brand for $1.5 billion.
This week’s better-than-expected earnings report elicited higher price targets from firms including Wedbush, Bank of America, Wells Fargo, Baird and Evercore ISI.
Overall option volume in VFC on Wednesday was almost 4 times the average over the last month. Calls accounted for a bullish 86 percent of the total, according to TradeStation data.
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