By Terri Stridsberg
L Brands LTD +2.37% (LTD) has put forth a solid performance on the technical front lately, gaining roughly 25% year-to-date, and outpacing the broader S&P 500 Index (and SPY ETF) by almost 6 percentage points during the last 60 sessions.
In fact, L Brands reached an all-time high of $62.14 on Oct. 4, and its subsequent, short-lived downturn was cushioned by LTD’s 80-day moving average. This trendline — which has served as a floor since early April — contained a pullback at the beginning of July, as well, after which the shares bounced notably higher.
History seems to be repeating itself right now, which could be an indicator of further upside over the next few months.
The stock’s sentiment backdrop is anything but upbeat. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) reveals a 10-day put/call volume ratio of 7.46 for LTD, indicating traders have bought to open more than seven puts for every call during the past two weeks. What’s more, this ratio is just 2 percentage points shy of a 52-week peak, signaling speculators have been snapping up puts over calls at a near-annual-high clip.
Similarly, LTD’s Schaeffer’s put/call open interest ratio (SOIR) checks in at 1.43, with puts outweighing calls among options with a shelf-life of three months or less. This ratio arrives in the 83rd annual percentile, conveying near-term traders have been more put-focused toward the equity just 17% of the time over the past year. Should the security add to its 2013 gains, an unwinding of these put positions — especially within the November series of options — could end up acting as a tailwind down the road.
Elsewhere, short interest on the apparel retailer climbed by 13.4% during the most recent reporting period, bringing the number of shares sold short to 9.5 million. It would take more than six days to buy back these bearish bets, at LTD’s average pace of trading. In other words, there is plenty of sideline cash to spark a short-covering rally, in the event that the stock extends its current trek higher.
In terms of analyst attention, the security maintains 10 “buy” or better endorsements, compared to 10 “holds,” and three “sell” or worse recommendations. Additionally, the equity’s consensus 12-month price target of $59.71 denotes expected upside of just 1.7% to LTD’s present perch at $58.72. This leaves plenty of room for a round of upgrades and/or price-target hikes, which could add to the shares’ upward momentum.
Traders hoping to bet on further gains for L Brands may want to think about purchasing the stock’s in-the-money January 2014 52.50-strike calls, which are currently asked at $7.60. Speculators should be aware that the company is tentatively on tap to reveal third-quarter earnings between Nov. 11 and Nov. 15.
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