Investment Opportunities

Playing The Children’s Place Lower in The War Room

Does a sharp paper trader – with intimate knowledge of fall children’s fashion – know something we don’t?

If you look at today’s options transactions, it would definitely appear that way.

Here’s the scoop…

This afternoon, a very interesting trade crossed the tape on The Children’s Place (Nasdaq: PLCE).

Someone bought 2,897 of The Children’s Place October $75 puts for $1.04 million.

That’s a pretty sizable order.

But they weren’t quite done.

Moments later, 1,986 additional October $75 puts were bought for another $714,960.

So someone with rather deep pockets is now putting more than $1.7 million on the line – speculating that The Children’s Place will move lower between now and October 18.

Could this be a direct result of the Stitch Fix (Nasdaq: SFIX) earnings that we highlighted in yesterday’s Trade of the Day issue?

To circle back to that article, Stitch Fix reported earnings of $0.07 per share on revenue of $432 million. This was a big beat from the company, as the analysts at FactSet were expecting earnings of $0.04. Stitch Fix also reported a powerful 18% increase in active clients to 3.2 million.

All good, right?

Not so fast…

Stitch Fix issued Q1 revenue guidance in a range between $438 million and $442 million, which was far below the Wall Street expectation of $451.3 million. And just like that, the company reversed hard to the downside – moving 13% lower at today’s open.

While the correlation between Stitch Fix and The Children’s Place might be small, there’s a chance this big put buyer is using the negative reaction on Stitch Fix to prepare for a similar move on The Children’s Place.

Action Plan: From a chart perspective, negative retail earnings – combined with a weak market environment – could easily be the catalyst to trigger a retest of the August lows on The Children’s Place around $70. Combine those indicators with a heavy put buyer (noted above), and it all lines up for jumping on board and playing it lower. That’s exactly what we did today in The War Room.

Want to hear about these trades in real time – as they happen live? Then you’re invited to join us in The War Room today!


About

Bryan graduated with a business degree from the highly rated Indiana University Kelley School of Business, and his first job out of college was trading stock options on the floor of the Chicago Board Options Exchange. He was mentored by some of the country’s top floor traders in the heart of the technology boom from 1999 to 2000, where he learned to identify and implement some of his most powerful trading secrets. Now he shares his secrets with a group of elite traders. We will be republishing some of his highly sought after content from his free e-letter, Trade of the Day.

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