Ethan Allen (ETH): Put Volume Soars to 240X Avg. - A Seasonal Sell?

Ethan Allen (ETH) shares fell 6% as MasterCard Spending Pulse data showed weak spending in furniture and it traded 6,066 puts on the day, 240X daily average with most of the action on the offer as bearish buyers cause IV30 to jump 21.8% on the day. The August $20 puts were the target today as 4,286 traded against OI of 62, opening positions.

The $594M home furnishing Co. trades 24.3X forward earnings, 0.89X sales and 13.35X cash flow, and a massive 19.3% short float, 19.5 days to cover. There was also no signs of buyers in the underlying stock on the day, so it looks to be plenty of outright bearish bets, mainly from 3:44pm to the close.

Meanwhile, Pier 1 stayed positive on a day that was weak for retail after reporting strong same store sales growth, potentially stealing market share from Ethan Allen.

Looking at the chart we have a clear double top at $25 from April 2010 highs and April 2011 highs, a very similar seasonal pattern and history may repeat itself here. Shares broke $21.30 that was acting as support and now are sitting right on the 200 day EMA that looks unlikely to hold, and a break below the 38.2% Fibonacci would target a move to $19, and then possibly lower. Shares also closed below the lower Keltner Channel, which over the last two years has resulted in sharp sustained sell-offs.

The best approach here may be to wait on a weak volume bounce to around $21.50, and let the IV come down a bit, but longer term, the put options look to be a good choice.