Put Traders Target Retailer Amid Pre-Earnings Pullback

Ross Stores Inc (NASDAQ:ROST) is in focus ahead of its fiscal second-quarter earnings report, due out after the close today. Analysts expect the retailer to report earnings of $1.92 per share on revenue of $6.12 billion, representing year-over-year increases of 23.1% and 10.7%, respectively.

ROST was last seen down 1.7% at $230.70, extending a pullback from its Aug. 3 record high of $257.00. The 100-day moving average could be a jumping off-point, with the shares up 27.8% year to date. 

Options bears are blasting ROST ahead of the event. So far, the stock has seen 30,000 puts exchanged -- 27 times the intraday average volume -- compared to just 5,265 calls. The September 220 put is the most popular contract, followed by the October 240 put, with new positions opening at the latter. 

The sudden burst of bearish activity stands in stark contrast to the elevated call buying seen during the past 10 days. ROST's 10-day call/put volume ratio of 2.30 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks in the 92nd percentile of its annual range, indicating calls have been picked up at a much faster-than-usual clip during the past two weeks. 

Options traders are pricing in a 9.7% post-earnings move, regardless of direction, nearly double the 5.2% move the stock has averaged over its last eight reports. The shares have finished seven of those eight next-day sessions higher, including gains of 8.1%, 8%, and 8.4% following the three most recent reports.

ROST's at-the-money implied volatility (IV) is also at a 52-week high today, as traders brace for an outsized reaction to the retailer's quarterly results. From a contrarian standpoint, ROST's history of strong earnings reactions, today's elevated options pessimism, and the pullback from record highs could set the stage for a swing higher following an upbeat report.