Retail stocks rebound ahead of earnings report

Clothing seller Gap company (NYSE:GPS) I will enter the earnings confessional after today’s close. Wall Street expects the company’s first-quarter results to provide insight into what U.S. consumers are spending over the summer.

Before the event, Gap shares were last trading 3.4% higher at $22.36. Shares recently dropped from a more than two-year high of $28.59, but just bounced above recent resistance at the 40-day moving average. In the long term, GPS gains a 178.1% advantage year over year.

Looking at the last eight quarters, security tends to come out after earnings results. In fact, Gap shares have rallied over the last four sessions following the earnings release, including a 30.6% jump in November. Options traders are pricing in an 18.8% swing for safety this time around, which is more than double Gap’s stock’s average swing of 9.8% over the past two years, regardless of direction.

Option volume is twice the average intraday amount prior to the event. So far, 21,000 calls and 8,163 put options have appeared on the tape, and new positions have been opened under the most popular contract – the August 27 call.

Looking a little further back, GPS shows a 50-day call volume to sales ratio of 3.74 on the International Stock Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio is in the 96th percentile of the yearly range, suggesting that the tendency to bet bullishly is nothing new.