Price Forecast:

Bullish Case: The recent increase in implied volatility indicates anticipated upward movement in RH's price. Additionally, the sentiment reflects optimism about strong brand identity and market recovery. Historical patterns also support potential returns in the luxury furnishings market, indicating a coming bullish trend.

Bearish Case: Market sentiment shows skepticism due to recent underperformance and elevated implied volatility, hinting at potential risk. Given the bearish forecasts and declining historical returns, there's a significant chance RH may face continued selling pressure, leading to price declines.

Potential Outcomes:

• 1. Price rebounds significantly due to positive earnings (40%).
• 2. Stabilization around current levels as market digests news (30%).
• 3. Continued decline driven by negative sentiment (30%).

Trading Oracle: Initiate a bull call spread by buying the RH $405 call at a $1.87 ask and selling the $415 call at a $0.80 ask, capitalizing on high volatility and anticipated positive movement in the next three weeks. This leverages current market expectations for significant upside, yielding a strong reward-to-risk ratio.

December 21, 2024