Option bulls are being drawn to Deckers Outdoor Corp.
(NASDAQ:DECK), which is defying broad-market headwinds today. In early afternoon action, the boot-making behemoth has seen roughly 7,700 calls change hands as of 1:12 p.m. ET -- a 34% mark-up to its average midday call volume, and nearly three times the number of DECK puts traded.
Digging deeper, it appears speculators are establishing new positions at the February 42.50 call, which has seen close to 1,100 contracts cross the tape -- mostly at the ask price, suggesting they were bought. Plus, implied volatility was last seen 7 percentage points higher, hinting at fresh initiations.
By purchasing the calls at a volume-weighted average price (VWAP) of $1.36, the buyers expect DECK to muscle north of $43.86 (strike plus VWAP) by the closing bell on Friday, February 15. At DECK's current share price, it would take an uptick of about 5.3% for these calls to become profitable. Currently, the options' delta stands at 44, suggesting a 44% chance these calls will finish in the money. However, even if DECK remains beneath the strike through expiration, the most the buyers can lose is the premium paid at initiation.
Expanding our sentiment scope, we find that today's appetite for near-term calls is just more of the same for DECK. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.49 indicates that calls more than double puts among options expiring within three months. Even more telling, perhaps, this ratio registers in the 22nd percentile of its annual range, implying the short-term options crowd is more call-heavy than usual right now.
What's more, now appears to be an opportune time to scoop up front-month options. The stock's Schaeffer's Volatility Index (SVI) of 47% sits just 17 percentage points from a 52-week nadir, indicating that February-dated options are relatively inexpensive at the moment.
At last look, the shares of DECK have powered 4.5% higher to flirt with the $41.63 level, after analysts at Jefferies upped their price target by $10 to $60. The upbeat attention has helped to overshadow a bearish brokerage note from Sterne Agee, which said it sees "no scenario that DECK meets its 4Q guidance and still is able to position itself well for the future." Furthermore, the analysts called consensus estimates "much too high."
The company is expected to unveil its fourth-quarter figures sometime in mid-to-late February. Historically, Deckers has topped the Street's bottom-line earnings forecasts in three of the past four quarters, Thomson Reuters reports.
This article by Andrea Kramer was originally published on Schaeffer's Investment Research.
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