Gap Stock Breaks Higher on Surprise Quarterly Profit

Apparel retailer Gap Inc (NYSE:GPS) is up 12.1% to trade at $8.32 at last check, after reporting a surprise first-quarter profit of 1 cent per share amid restructuring efforts and easing supply chain pressures. The shares are brushing off a revenue miss, as well as three price target cuts, including one from UBS to $6 from $7.

Analysts are bearish toward GPS, with 12 of the 13 in coverage calling it a tepid "hold" or worse. Meanwhile, short interest is up 6.4% in the most recent reporting period, and the 31.45 million shares sold short now make up 17.5% of the stock's available float.

Gap stock is bouncing off yesterday's three-year low of $7.22, however, while eyeing its first close above the 20-day moving average in over one month. Familiar pressure at the $8.80 level seems to be keeping this rally in check, and year-to-date GPS is still down 27%.

Options traders are more optimistic than usual. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), GPS' 50-day call/put volume ratio of 2.58 sits in the 97th percentile of its annual range.

Overall options volume is today running at eight times the intraday average, with 12,000 calls and 12,000 calls exchanged so far. Most popular is the weekly 5/26 7.50 put, which expires at the close.