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Traders see pain for Abercrombie & Fitch

It's been a wild week for Abercrombie & Fitch stock.

Shares are recovering from Thursday's 3 percent loss, as investors fled the stock following a downgrade to underweight by Morgan Stanley. And options traders see even bigger moves for the teen retailer ahead of earnings next Wednesday.

Read MoreAbercrombie's problems aren't all about the logo

Current put and call prices are implying a 13.5 percent move in either direction when it reports next week, according to CNBC Contributor Mike Khouw. That's nearly double the average of 7 percent that it typically moves on earnings.

Pedestrians are reflected in the window of an Abercrombie & Fitch store in San Francisco.
Getty Images
Pedestrians are reflected in the window of an Abercrombie & Fitch store in San Francisco.

"Options traders appear to be very concerned about this upcoming earnings release," said Khouw, who on highlighted one notable trade during an appearance Thursday on CNBC's "Fast Money." Specifically, someone bought 15,000 of the March 13 weekly 18-strike puts for 20 cents each. Since each contract controls 100 shares, and a put contract gives investors the right to sell a stock at a set time and price, this trader is essentially betting $300,000 ($20 x 15,000) that the stock will fall 25 percent in the next two weeks. In order for the trade to be profitable, Abercrombie & Fitch would need to be below $17.80 by March 13, or its its lowest level since March 2009.

While retail stocks have rallied 3 percent this year, shares of Abercrombie have fallen about 14 percent as of Friday afternoon, when the stock gained more than 3 percent at $24.59 a share.

Wall Street is expecting the teen retailer to reports earnings of $1.17 per share, 17 cents lower than a year ago, according to FactSet.

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    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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