Buy Abercrombie Calls Before Conference, Goldman Sachs Says

Investors should buy Abercrombie & Fitch Co. (ANF) calls before the teen retailer hosts its first investor day on April 5, which could boost the company’s stock price, Goldman Sachs Group Inc. (GS) said.

Derivatives strategists Katherine Fogertey and John Marshall recommended buying Abercrombie’s April $55 calls because retail analyst Michelle Tan said the investor day will be “bullish” and there is potential for high volatility. Tan rates the New Albany, Ohio-based retailer a “buy” and raised the forecast price to $72 from $70 on March 3. Abercrombie gained 0.3 percent to $55.05 today.

“Options are not pricing in a significant move,” the strategists wrote in a note today. “We see the potential for this analyst day to be stock-moving, and therefore do not see the volatility discount as warranted.”

Abercrombie advanced 23 percent in the past year compared with an increase of 16 percent for companies dependent on consumer spending in the Standard & Poor’s 500 Index. The gain in U.S. same-store retail sales in February surpassed analysts’ estimates and confidence among U.S. consumers rose last month to the highest level in three years, according to a Thomson Reuters/University of Michigan index, as a drop in unemployment helped overcome concern over rising food and fuel costs.

The trade starts to profit if the shares close above $57.05 at expiration on April 15, the note said. The April $55 calls were the second-most active contracts today.

Calls give the right to buy 100 shares of a security for a certain amount, the strike price, by a set date. Puts convey the right to sell. Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will rise or fall.

To contact the reporter on this story: Cecile Vannucci in New York at cvannucci1@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.