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Fossil Call Options Active Ahead of Earnings

Fossil (FOSL, $63.97, up $1.75) call options were active ahead of Tuesday morning's earnings announcement.  The company has been on a roll of late as they have become one of the best run retailers in the industry.  Their product mix is great and they manage their inventory well.  

Over the past few quarters, shares have surged after earnings as the company has easily beaten Wall Street's estimates for the past year.  For the just ended quarter, the 7 analysts following the company are looking for 73 cents a share, on revenue of $483 million.  

In August, the company reported a profit of 80 cents a share while analysts were looking for 34 cents which represented a 135% earnings surprise.  Option traders are looking for more of the same this time around as well.

The Fossil November 65 calls (FOSL101120C00065000, $2.65, up $1.25) surged nearly 90% on Monday after opening at $1.60, up $0.20 from Friday's close.  Over 2,500 contracts traded hands in this one strike which was nearly 5x the November put option volume overall.

We were a little shy about pulling the trigger on this trade because the option strikes only traded in increments of 5 which means there was no 67.50 call strike available.  The November 70 calls (FOSL101120C00070000, $0.90, up $0.40) also made a nice move, up 80% from Friday's close, after opening at $0.61 per contract.

We profiled this trade in our video yesterday for our option course, How to Trade Options on Momentum Stocks, and we talked about our dilemma.  We didn't take the trade because we factored in a 10% move in the stock from Friday's close which only got shares to $69.  We were worried about the inflated premium should shares not break $70 but we didn't factor in today's 3% pop in the stock.

Although both of these call options made tremendous gains yesterday, shares of Fossil were slightly higher in after-hours trading which could be a sign.  The stock set a 52-week high intraday of $64 on Monday and was above this level after extended trading had closed.

Of course, the devil will be in the details when they report on Tuesday morning but these call options could continue to do well if the company impresses Wall Street.  If not, we will see a classic "buy the rumor, sell the news" event.

Disclosure: No Positions