COVID-19 Cancellations of the NBA and MLB Have Hit Hard, Option Traders Say It’s Not Done

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  • It’s been a couple weeks since the NBA and other professional sports cancelled their seasons. It wasn’t just the players and the fans that were disappointed by the announcement, the sporting goods industry has been hit just as hard. While the impact on interest in licensed products would take an expected hit, the closure of stores and malls continue to deliver even larger blows to company’s like Foot Locker Inc (FL) and others. For these retailers, the closures are not just U.S. based but global.

    Since February 21, 2020, FL has fallen from around $41.50 to close yesterday at $18.21. That seems like a lot, but analysts have only lowered earnings for the current quarter and next by 12%. When you look at those numbers, it makes you wonder how much of the potential earnings impact is currently priced in.

    On Monday, the put volume was about 66% higher than average with 61% of those put contracts being filled at the ask or higher. That type of activity is reflective of largely buy orders. The put volume was also 2.4 times that of the calls. For the 17 APR 20 $15 put, 2300 contracts were bought at one point for $0.90 or more. The open interest was 611. That shows a dramatic amount of downward movement in the next couple weeks with around a $14 breakeven.

    Action to Take: This represents a short opportunity with a $13 near-term target by April 17.

    For those considering using options, the 17 APR 20 18.50/17.50 long put vertical can be purchased for around $0.50. That gives a 100% ROR of $50 a contract if the stock closes below $17.50 at expiration. Consider closing early if it can be sold for $0.80.

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