More Volatility Ahead for Retail?

Richard Faulder

Gap Store

Intrepid options investors who usually relish beaten-down stocks are setting up for more volatility in Gap Inc. shares.

The stock fell as much as 18% Friday after the company warned that its profit margins for the year will be hurt by rising raw material costs. Shares of the nation's largest clothing retailer by sales fell to an intraday low of $19.09, after hitting a 52-week high of $23.73 on May 4.

The news raised questions about other retailers and fed a sell-off the sector amid broader market declines on risk aversion.

And options traders don't appear too optimistic either.

Today's options action around the 19- and 20-strike puts indicate that investors don't see a rebound anytime soon.

"I was considering maybe buying around 19 because that was an old low, but I've decided that it feels too dangerous," said Jim Iuorio, TJM Institutional Services Director. "High activity in the June options implies that there will be increased volatility in (GPS) over the next few weeks," he added.

• CNBC Stock Blog: Retailers Hit on Gap, Aeropostale Lower Guidance

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