Coty Inc. Finds Significant Bullish Option Activity As KKR & Co. Bails

In case you missed the news, Coty Inc. (COTY) had KKR & Co. Inc. (KKR) cash out of 50 million shares of the company’s stock. The result was a price gap lower of around 8%. This isn’t exactly the most bullish news for a company, however, some investors saw that gap as an opportunity to buy blocks of stock and call options.

COTY Turnaround

COTY is a company that owns a lot of brands like Burberry, Calvin Klein, Gucci, and Tiffany. They also own skincare brands like Lancaster and Philosophy. One key skincare brand that the company is attempting to rehab is Cover Girl.  

In the company’s most recent earnings report, they missed EPS estimates with a $0.09 loss for last quarter. However, the analyst estimates for 2022 and 2023 annual EPS remained about the same with a $0.01 adjustment up for 2023 and down for 2022.

The shares sold by KKR is a negative for the company attempting to turn things around. However, KKR still retains 568,367 Series B Convertible Preferred Stock, which is over 10% of the Class A common stock on an as-converted basis.

COTY Option Activity

As the $8.53 pricing on the offering pushed the share price of COTY nearly 10% lower on the session, it wasn’t all bad. There were some that saw an opportunity to take advantage of the dislocation of the price. The opportunity was taken in both the shares and call options on COTY. Here’s a breakdown of the activity:

  • Two 1 million share buy prints @ $8.40 just after the open.
  • 30,000 19 Nov. 21 $9 calls mostly BOT in 2 prints @ $0.60 to $0.72.

The two option prints were filled at the ask price in quantities of 9,765 and 6,241 contracts. The size of the fills for the shares of stock and the options shows that these were not retail investors. The indication is that some large investors are expecting the price to recover off of today’s low and move higher over the next couple months.

COTY Technicals

Considering the level at which buyers came in today to buy COTY, it makes you wonder whether they’ve done this before. Looking at the one-year chart, you see many support and resistance points that align with the $8 price level.

For example, last December and January, $8 was a resistance level where sellers drove the price down. Then, in February and March, the level was used as support one the price broke the resistance. Since that time, the price has mostly remained range-bound as the $8 support area has been tested many times.

While a significant level of support doesn’t mean that the price won’t break it, it is a level that can help be an indication of when to exit a long position. This is a result of sellers coming in once that level of agreement is broke.

Conclusion

The move today in COTY and the news of a major shareholder selling a large stake isn’t exactly good news. However, how many times have you seen a stock gap only to see it quickly find support and head up? The indication of today’s stock and option trades shows some level of support for the stock at its current price. If the support holds, it could be a reasonable reward/risk opportunity if the stock retests the upper end of its range near $10.

Disclaimer: Neither TheoTrade or any of its officers, directors, employees, other personnel, representatives, agents or independent contractors is, in such capacities, a licensed financial adviser, ...

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