SFIX has nearly tripled off its November IPO price
Stitch Fix Inc (NASDAQ:SFIX) is scheduled to report fiscal first-quarter earnings after the close on Monday, Oct. 1. The clothing subscription concern has pulled back in the past week from its record high of $52.44 on Sept. 18. However, the options market is pricing in an outsized move for Monday's trading, and speculators appear to be positioning for a big bounce.
At last check, Trade-Alert pegged the implied daily earnings move for SFIX at 18.2% -- bigger than the average 13.3% next-day move the stock has averaged over the last three quarters. Stitch Fix's first two earnings reactions were negative, but a blowout earnings report in June netted a 26.5% next-day gain for the stock.
Options traders have focused on long calls in recent weeks, according to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Looking at the past 10 days, 9,094 SFIX calls were bought to open across these exchanges, compared to 2,723 puts, putting the 10-day call/put volume ratio at 3.34.
Digging deeper, the October 55 call saw the biggest increase in open interest during this two-week time frame, with 7,669 contracts added. Data from the major options exchanges confirms buy-to-open activity at this strike, suggesting speculators are betting Stitch Fix shares will surge to new highs by the close on Friday, Oct. 19 -- when the front-month options expire.
A continued round of short covering could fuel upside for SFIX. Though short interest fell 6.4% in the most recent reporting period, the 6.14 million SFIX shares sold short still accounts for a lofty 23% of the stock's available float.
Plus, there's room for analysts to issue upgrades and/or price-target hikes. Of the nine brokerages covering SFIX, more than half rate it a tepid "hold." What's more, the average 12-month price target of $34.11 is a 20% discount to its current perch at $42.24.
Looking at the charts, it's been an outstanding first year for Stitch Fix stock, which is trading at nearly triple its November initial public offering (IPO) price of $15. The equity is about to lock up its fourth straight monthly win, and boasts a 64% lead in 2018. Plus, the aforementioned pullback was contained by the shares' 40-day moving average.
