2,000 Abercrombie Calls Bought Before Big ANF Earnings Beat

Rebel Hub Education

by

Justin Nugent

August 23, 2023
at 6:50 PM

On August 10th, we reported an extremely unusual trade in Abercrombie & Fitch call options, expiring about three weeks after ANF earnings.

At the time, shares of ANF were trading at $40.61, meaning this trader was looking far out of the money for a big move on ANF’s earnings. Part of why this trade was so unusual was the vast difference between the 2,000 contracts bought “in the same second” against the open interest of just 12 contracts. This trader needed a move of at least 23.1% to get these options into the money — however, because they bought these with a bit of extra time to expiration, they knew they’d also benefit from a gain in extrinsic value if shares got close to the money.

Here’s how Abercrombie did on its report from this morning.

ANF Earnings Smash

After ANF earnings, shares of Abercrombie surged as much as 24.7%, with the company surpassing Wall Street’s expectations for both earnings and sales.

The company’s CEO, Fran Horowitz, attributed the strong performance to the brand’s diverse and fashion-forward product offerings, highlighting that,

“Abercrombie is no longer just a jeans and T-shirt brand, but a lifestyle brand.”

The company reported stellar EPS that crushed expectations:

$1.10 versus the expected $0.17.

This was due in large parts to price hikes put in place by Abercrombie to raise profit margins. Revenue still outperformed consensus estimates:

$935.3 million versus the expected $842.4 million.

Net income for the quarter was $56.9 million, a significant improvement from the year-ago period’s loss of $16.8 million. Abercrombie also raised its guidance for the full fiscal year, expecting net sales to increase by around 10%. This success stands out as Abercrombie defies industry-wide trends, unlike other retailers such as Home Depot, Target, and Walmart, which have experienced consumer reluctance to spend on discretionary items.

ANF’s CEO said his company’s shift from a mall store image to a more broadly appealing brand, offering versatile clothing options, has contributed to its success. Comparable sales across genders and regions saw significant growth, with a notable rise in sales of dresses, pants, and knit tops. The company plans to continue opening stores and investing in its digital experience.

How ANF Options Performed: +470%

At their height today, ANF options bought on August 10th rose as much as +470% from the price they were bought at, signifying the power of unusual options activity. We love trading earnings with UOA because there’s so much information sitting behind closed doors. Maybe someone knew something about ANF’s numbers — or maybe the teams of researchers deployed by institutions and hedge funds used their own calculations to determine that ANF was clearly outperforming this quarter.

It doesn’t matter — what matters is that we saw something unusual in the options (2000 options bought far out of the money in a single order against a whole of just 12 open interest) that perked our interest in this name. As a result, Rebels who followed along with this trade are likely very pleased.

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