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Baird Upgrade Sets Off Coach Inc (COH) Options Pits

Coach Inc (NYSE:COH) call options have been extremely popular lately

Jul 18, 2016 at 10:58 AM
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Unlike sector peer Tiffany & Co. (NYSE:TIF), bullish expectations seem to be building for upscale fashion stock Coach Inc (NYSE:COH). Most notably, Baird upgraded the stock's rating to "outperform" from "neutral," and raised its price target to $50 from $45. The firm cited growing demand for Coach handbags, based on a recent survey. Coming into today, 11 analysts already had COH rated a "strong buy," while just one recommended selling the stock. It appears COH options traders share this upbeat view, as well. 

Looking at data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio was just 0.20 at the beginning of July, before ballooning as high as 3.45 on July 11. The current ratio of 1.75 indicates nearly twice as many calls have been bought to open for every put during the past two weeks across these exchanges, while also topping 70% of all comparable marks in the past year -- meaning this pace of call buying is unusual. 

The stock's Schaeffer's put/call open interest ratio (SOIR) is also far more call-skewed than normal. COH's SOIR comes in at 0.39, which sits just 5 percentage points from a 12-month low. This tells us traders targeting COH options expiring within three months have targeted calls over puts at an uncommon rate. 

This trend is continuing today, where COH calls are trading at five times the pace normally seen at this point in the day. What's more, it seems anyone buying short-term COH options today are getting a solid deal. Specifically, the stock's Schaeffer's Volatility Index (SVI) of 31% ranks in just the 29th percentile of its annual range, meaning the options market is pricing in lower-than-normal volatility expectations at the moment. 

Outside the options pits, short sellers have been throwing in the towel. In fact, short interest on COH has declined by 38% in the past 12 months, including a 16% drop in the two most recent reporting periods alone. At the same time, nearly a week's worth of buying power is still controlled by these bears, going by COH's average daily trading volumes. 

Turning to the charts, momentum was working against Coach Inc (NYSE:COH) coming in to 2016, as the shares had been trending lower since hitting an all-time high near $80 back in early 2012. More recently, though, COH has performed well, gaining almost 33% year-to-date, including today's 2.8% pop to hit $43.48. Furthermore, the stock touched an annual high of $43.60 earlier, breaking through the $40-$42 range, which has given it trouble in the past few months. 

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