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Option Traders bearish against Coach Inc

|Includes: Tapestry, Inc. (TPR)

Coach Inc., the marketer of fine accessories and gifts for women and men, has seemed to recently shrug off the recession. Shares of the company rose approximately 3.4% Friday ending the week on a positive note.  However, option traders have positioned themselves for a bearish future.  These traders are expecting a possible retracement ranging from 5% to 13%.   

Moreover, Coach has been trading near its 6 month high.  These bearish option traders may be correct to anticipate a pullback from these high levels.  In support of their view, analyses of the details are needed.   

The Put contracts with the highest levels of open interest converge upon the $25, $24 and $23 strike.

 

$25

$24

$23

July PUT

1.00

.8

.5

Open Interest

3,172

772

4,282

  

 

$25

$24

$22.5

August PUT

2.34

1.6

1.10

Open Interest

2,510

10,621

2,115

 

As noted above, the highest level of open interest resides on the August $24 Puts.  The strike price which this particular contract holds projects an 8.5% retracement of the stock before the contract would be in-the-money.

For those looking to commence a bearish position on COH, consider the following analysis:

Purchase one July $25 strike put option contract and one August $24 put option contract for a cost of $270 ($1.10 * 100 shares/contract + $1.60 * 100 shares/contract).  As a suggestion to hedge your position, sell one August $23 put option contract with a strike price of $22.5 for a cost of $110 ($1.10 * 100 shares/contract).

The final cost for your Bearish Put Spread should be $380 with a Break-Even price of $24.06.

As the US economy revives from the recession, it is important to acknowledge the rate of gain of US Retail shares.  In some cases, if the shares are overpriced, it may be wise to step-back and re-examine the upward movement a little closer.

Disclosure: At time written, author did not own any securities pertaining to the company mentioned above.

Disclaimer
Throughout this passage, opinions are only stated.  Trade recommendations are strictly speculative, and do not guarantee anything. I highly advise everyone to do your own research and Due Diligence before investing.