- Spot at range lows and strong support level ahead of upcoming 2Q25 results on Sept 10th. Stock likely to move significantly from current levels over a 3M period.
- 24% disc to ATH, undemanding valuation, apparel sector underperformance and ongoing sales growth skew risks to the upside.
- Attractive call skew justifies selling ATM vol to finance upside exposure
Revisiting our May 2024 note on Inditex: Sell Aug24 42/46 strangles – Expectations of limited volatility ahead , the stock is now trading at YtD lows and at what appears to be a make or break support level (Fig. 1) ahead of its upcoming 2Q25 results on 10th September. Given this level has been retested several times over the last year and a half we expect price to move significantly from current levels over the next 3 months.
Although we do not have a strong conviction on the direction, our view is slightly skewed to the upside given both valuation (Fig. 3) and price are no longer demanding following the c.24% retrace from ATH and the broader apparel sector underperformance (Fig.4). Inditex is still a high-quality company with a resilient brand, strong balance sheet and superior cash flow relative to its peers despite the markets concerns around a potential tariff induced slowdown. The latest retail sales data also continue to show growth in Europe, albeit muted in Germany/France, and upside surprises to growth expectations in China and the US.
Moving into the results, the elevated 3M ATM IV (1YPc67) and attractive Call skew (1YPc2) (Figs 5&6) sway our preference for a Long 2x Dec25 46 call financed 1x Dec25 43 call at a net credit of 0.7% of underlying. (Spot ref: 42.35, Fut. ref 42.55). If spot reaches 50 the strategy will return approximately 2 EUR of profit or c.5% of spot all else being equal.