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Portfolio Manager: This Stock Could Be a 10-Bagger

Karee Venema

Options traders are blasting surging cosmetics stocks Avon Products, Inc. (NYSE:AVP) and Coty Inc (NYES:COTY) today, on bullish buzz from Bill Miller. The portfolio manager told CNBC that AVP is an "emerging market opportunity," and "could be a 10-bagger in the next three to five years." In addition to unveiling a long position in Avon, Miller said he personally bought shares of rival COTY, saying "most of the damage has been done."

AVP Stock Eyes Best Session Ever

Last night, Avon Products announced several cost-cutting measures, including cutting 10% of its global headcount and lowering inventory levels by 15%. AVP shares were up 28% at their session peak today, but ran out of steam near familiar resistance in the $2.40 region, and were last seen 21.2% higher at $2.29. Since its Dec. 26 record low of $1.31, the stock has now added 75%.

AVP stock chart jan 31

Bullish options traders are betting on even more upside, too. Roughly 21,000 AVP calls have traded today -- 19 times what's typically seen, and a new annual high -- compared to 3,700 puts, still 12 times the expected intraday amount, though. Most active are the February 2.50 and March 2 calls, where it looks like new positions are being purchased.

Meanwhile, short-term options are pricing in extremely elevated volatility expectations, per AVP's 30-day at-the-money (ATM) implied volatility (IV) of 96.3% -- in the 95th annual percentile. Plus, the stock's IV skew of negative 20.3% registers in the 5th percentile of its 12-month range, meaning calls are near parity with their put counterparts.

COTY Shines on Miller Nod

Coty stock is up 4.6% to trade at $7.55, after earlier rallying right up to familiar resistance in the $7.80 region -- home to its 60-day moving average. This trendline has helped usher the shares to a 61.4% year-over-year loss and a record low of $5.91 on Dec. 26.

COTY stock chart jan 31

Nearly 7,600 calls have changed hands on COTY stock today, eight times the average intraday amount and almost five times the number of puts traded. Not all of the call activity is of the bullish variety, though, with possible sell-to-open action detected at the weekly 2/1 7.50-strike and March 8 calls. If this is the case, speculators expect the stock to settle below the strikes at the respective expiration dates.

These options traders may also be looking to capitalize on a volatility crush, too. While Coty's 30-day ATM IV of 66% ranks in the 96th percentile of its 12-month range, the security's 30-day IV skew of negative 3.3% arrives in the low 14th percentile of its annual range.