We revisit our October downside trade idea on Inditex – Long Mar26 46 puts – Time to play the downside, following the stocks 20%+ rebound from our exit price. The strong performance has been driven by strong 3Q results delivering better-than-expected margins, cashflow, and robust sales.
The stock is now trading at range highs, with a full 12m forward PE 26x (c.30% premium to av.) and we see a high probability of the stock mean reverting over the next six months, as we anticipate that weaker underlying job prints, and likely overoptimistic earnings expectations will lead to volatility in the more consumer-sensitive sectors.
Looking at volatility, the 6M 90% IV at 3YPc21 is undemanding swaying our preference to add negative delta again to the name via limited loss structures and propose Long Jun26 50 puts costing 3.1% of underlying (Spot ref: 55.5, Fut. ref 55.4).