Abercrombie & Fitch (ANF) reported Q4 2024 results on Wednesday before the markets opened. While its numbers for the fourth quarter and 2024 were excellent, the guidance it provided investors for 2025 was less than assuring.
Its shares fell more than 9% on the news. As a result, its stock hit a 52-week low of $79.77 before rebounding slightly. It is ANF’s 19th 52-week low of the past 12 months.
Down nearly 42% in 2025, its shares are trading at the lowest level in 14 months, with more pain potentially on the way as it works through Donald Trump’s tariff war with seemingly every country on the planet.
If you are not a risk-tolerant investor, I suggest you skip the rest of my commentary. Since Trump's trade war became a reality this week, the risk factor on all retail stocks has increased.
If you are risk-tolerant, the stock’s two unusually active put options yesterday are worth considering because ANF remains a well-run operation that is a winner in regular times.
But, even risk-tolerant investors should tread carefully in the current economic climate.
The Unusually Active Options From Yesterday
When I discuss unusually active options, I do so with two criteria.
First, they must have a Vol/OI interest of 1.24 or higher. Secondly, they expire in a week or longer. That eliminates options expiring on Friday. I do so to avoid 0DTE (zero days to expiration) options. I’m not a fan of them but that doesn’t mean you shouldn’t be.
Okay, with that out of the way, here are the two options.
Your options and strategies will vary depending on one’s view of Abercrombie’s near-term and long-term prospects. Taken separately, they’re relatively easy bets to make.
As I said earlier, given the economic climate, one must consider the pros and cons of owning ANF.
The Near-Term Cons of Owning ANF Stock
Right off the hop, the Barchart Technical Opinion rating is Strong Sell. While this suggests that the overall market may be oversold, the technical indicators are red.
At this point, you have the S&P 500 down in 2025, and all gains made in the final two months of 2024, post-election, have been erased in the past month. While the S&P 500 closed Wednesday trading about 310 points away from a correction, it wouldn’t take much to get it to 5532.69, 10% down from its February high of 6,147.43.
The saying, “It’s going to get worse before it gets better,” applies to both ANF stock, the markets in general, and the American consumer. Those aren’t great ingredients for a rockin’ stock market.
“‘Tariffs are likely to add upward pressure to inflation and be a headwind to economic growth at the margin, an unfavorable combination for risk assets broadly,’ said Josh Jamner, senior investment analyst at ClearBridge Investments, in a note,” MarketWatch reported on March 4.
So, in the near term, ANF stock will remain a falling knife.
The Long-Term Pros of Owning Abercrombie
Despite the near-term carnage to its market cap, ANF stock remains up 672% over the past five years, a clear leader in the consumer discretionary sector, over the past 60 months.
Further, consider what the company said yesterday in its press release.
In 2025, it expects sales growth of 4% at the midpoint of its guidance, down from 16% in 2024 but still positive. Its operating margin will be 14.5%, down 50 basis points from 2024 but still very healthy. In 2025, it will open 40 net new stores and remodel 40 others. Lastly, it expects EPS of $10.90.
It shares trade at 8x that estimate. In the past decade, it has only once traded remotely close to this multiple, in June 2022, at 9.4x its forward EPS.
We face considerable uncertainty in 2025, so there’s every reason to believe it will miss some targets. However, CEO Fran Horowitz is an excellent leader and should be able to navigate this situation, as she did during the pandemic.
I like its chances. Unless the world collapses, its stock should be higher than it is in 3-5 years.
Back to the Options
I asked Perplexity to name the options strategy involved in selling the May 16 $70 put and buying the March 14 $80 put. It came up with a “Put Calendar Spread.” The only problem with this strategy is that it could be bearish in the longer term.
That’s not my view.
In addition, the downside protection provided by the $80 put only is intact for the next eight days, while the risk of it falling below $70 is a legitimate concern.
What if I flipped the bet? That is, I sell the March 14 $80 put, and buy the May 16 $70 put. In this situation, my net credit spread of $0.85 [$1.85 bid price premium - $1 ask price] turns into a net debit spread of $1.30 [$2.15 ask price - $0.85 bid price].
Why is that bad? Well, it’s not, necessarily.
Let’s consider both scenarios with a $75 share price at expiration on March 14 and $65 on May 16.
Scenario 1:
The March 14 put provides a $5 profit [Buy 100 shares of ANF at $75 and sell for $80]. However, the $65 price on May 16 means you would likely have to buy 100 shares at $70, and they would be worth $5 less, so they cancel each other out, and you make $0.85.
Of course, you could keep the shares, as selling puts is a legitimate way to secure a better entry point for a long position.
Scenario 2:
The March 14 $80 put provides a $5 loss [Buy 100 shares of ANF at $80, $5 more than the $75 share price at expiration] while the May 16 $70 put provides a $5 profit [You buy 100 shares of ANF at $65 share price and sell for $70], again canceling each other out.
The only difference is you now have a $1.30 loss on the bet due to the net debit spread.
To simplify the bet, consider a bear put spread, where you buy a May 16 $80 put, and sell a May 16 $70 put.
In this scenario, your maximum profit would be $6.85, 2.17 times your $3.15 maximum loss. They call this a vertical spread. It’s far easier to execute than buying a put and selling a put at different expiration dates and strike prices.
I don’t have a problem with merely selling the May 16 $70 strike for a 10.7% annualized return [$1.85 bid price premium / $87.23 share price * 365 days / 71 DTE].
In the worst-case scenario, you would buy 100 shares of ANF for $68.15, which is not too far off the $65 price I used for the previous examples.
But you have to be bullish.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
