The Striking Price

Betting Against Tiffany and for Twitter

Investors are wagering the jeweler’s earnings disappoint while the social media site finds a backer.

By STEVEN SEARS

Saturday, May 21, 2016

Ralph Nicoletti’s surprise resignation as Tiffany's chief financial officer has stirred up the bears ahead of Wednesday's first-quarter earnings report. Nicoletti left to become Newell Brands’ finance chief.

His resignation has investors preparing for an earnings mishap. In recent sessions, when Tiffany stock (ticker: TIF) was about $65, investors bought more than 8,000 May 60 puts that expire May 27 at prices up to 84 cents. Others bought about 5,500 May 60 puts and 1,000 59.50 puts that expire on May 27. Should the stock hit $57, for example, the $60 strike puts would be worth $3.

Wells Fargo's Ike Boruchow told clients that Nicoletti's departure for Newell (NWL) after only two years bodes poorly for the jewelry and luxury goods retailer. Boruchow said that Tiffany faces serious pressures in core markets and turnaround efforts will be complicated by hiring a new CFO.

Susquehanna Financial Group, which flagged Tiffany's unusual trading volume to clients, expects the stock to move about 8% in reaction to earnings in either direction, almost double the 4.5% move seen after its past eight earnings reports. Tiffany is expected to earn 68 cents a share on $915 million in revenue.

Investors have accumulated 53,000 bullish calls, many of which are likely hedging short positions, and 90,000 bearish puts. The message is simple: Watch out below.

TWITTER’S (TWTR) STOCK CHART shows that the company has fallen from grace. At about $14, the shares are well below their November 2013 offering price of $26. On its first day of trading, the stock closed at $44.90. In short (pun intended), Twitter’s chart indicates that investors are unwilling to give the social-media company any benefit of the doubt.

Yet one investor is making a huge bet that Twitter's worst days may soon end, or that the end will not occur before June expiration. This investor sold 30,000 June 12 puts, betting that the stock does not break through that striking price. Should the $14 stock sink past $12, the investor is on the hook to buy stock at $12.

The June expiration is curious. It suggests that the investor wants to sell options without any real event risk such as earnings. Some believe that approach lets investors pocket premiums with a low probability of buying stock. Or perhaps the investor thinks Twitter’s May 25 shareholder meeting will produce bullish fireworks. Could an activist investor emerge to raise concerns about Twitter's ineffective management? Hopefully.

BILL BRODSKY, an architect of the global derivatives market, announced last week that he would retire next May as chairman of CBOE Holdings (CBOE). Brodsky will join Cedar Street Asset Management, which was just launched by Jonathan, one of his three sons. Bill Brodsky has served as CBOE’s chairman since May 2013. In the 16 years prior, he was both chairman and CEO.

Money manager Cedar Street focuses on international equity investments. Jonathan Brodsky previously worked at Advisory Research Investment Management, where he created the firm's non-U.S. value investment unit.

At CBOE, Bill Brodsky turned one of the world's largest open-outcry exchanges into a public company renowned for its technology and innovation. CBOE created the Volatility Index, or VIX, which sparked the creation of a global volatility market. He also served as chairman of the World Federation of Exchanges.

“Dad has a worldview, and a career, that has encompassed essentially all key global market events of the past 50 years,” says Jonathan. “His experience is invaluable.”

The partnership extends a family tradition. In 1928 Bill's father, Irwin Brodsky, began a career on Wall Street that included senior positions at several major investment banks.

Reprinted by permission of Barron's Online, © 2016 Dow Jones & Company, Inc. All Rights Reserved Worldwide.

The views expressed in the above papers and articles are solely those of the author of the article, and do not necessarily reflect the views of OIC; the information presented is not intended to constitute investment advice or recommendations to purchase or sell securities of any company; and the information presented is based upon particular events that may or may not recur in the future.

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