Shares of Finish Line Inc (NASDAQ:FINL) are up 8.6% to trade at $12.70, after the athletic apparel retailer reported a slimmer-than-expected adjusted third-quarter loss of 26 cents per share on $378.50 million in revenue -- also a beat. FINL also said same-store sales for the three-month period unexpectedly rose 0.8%.
Today's pop has FINL shares positioned above their 180-day moving average. This trendline has helped usher the stock to a more than 49% year-over-year loss -- based on last night's close at $11.69 -- and contained a recent bounce off the equity's mid-November lows near $8.60.
Options traders had been loading up on long calls relative to puts at an unusual pace in the weeks leading up to this morning's quarterly report. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), FINL's 10-day call/put volume ratio of 8.93 ranks in the 83rd annual percentile.
Drilling down, the January 2018 13-strike call is home to Finish Line's top open interest position of 12,715 contracts. Data from Trade-Alert points to mostly buy-to-open activity here, suggesting options traders are eyeing a move north of $13 by January options expiration.
However, FINL is heavily shorted, meaning some of the action at this out-of-the-money strike could be a result of short sellers initiating an options hedge against any post-earnings upside risk. Although short interest fell 23.06% in the most recent reporting period, these bearish bets still account for 16.68% of the equity's available float.
Whatever the motive, elevated volatility expectations were being priced into short-term FINL options ahead of earnings -- which could make it challenging for premium buyers to maximize the benefits of leverage. Finish Line stock's 30-day at-the-money implied volatility closed last night at 71.5%, in the 93rd annual percentile.