Sportswear and fashion retailer Frasers (FRAS) has doubled its stake in electricals retailer Currys (CURY) to 8.9% via derivatives only a week after taking a 21.8% stake in online retailer AO World (AO) and forging a strategic partnership. Frasers also revealed a 5% stake in fashion group Boohoo (BOO:AIM).

Frasers added to its AO World stake last Friday (16 June) after opportunistically grabbing an 18.9% stake from Odey Asset Management, which was a forced to raise liquidity following client redemptions.

Earlier this month Frasers also increased its stake in fashion group ASOS (ASC) to 10%.

Shares in Currys were up 1.3% to 53.6p in early dealings on Tuesday, while shares in Frasers were 0.4% ahead at 714.5p and AO World shares were 0.6% higher at 85.2p.

HOW DID FRASERS BUY ITS CURRYS STAKE?

A regulatory news announcement showed Frasers has sold three separate ‘physical’ put options in Currys shares, with expiry dates of September 2024, March 2025, and December 2023. These represent shares worth 1.49%, 2.82% and 4.56% respectively.

A put option owner has a right but not an obligation to sell shares at a certain price called the strike price. The puts will have a fixed expiry date after which if they have not been exercised become worthless.

A buyer of a put option is expecting the shares to fall in the future and thereby lock in a profit by ‘putting’ the shares back to the seller at a lower price than the strike. The strike price is usually below the current share price.

For example, let’s say the current price is 100p and the puts have a strike price of 80p. If the shares fall to 70p before they expire the put buyer will make a profit of 10p per share (80p-70p) and the seller will lose 10p per share.

With physical delivery the put seller (Frasers) is forced to buy the shares from the buyer at the strike of 80p.

Effectively, Frasers is buying Currys shares below a certain price, but we do not know the strike prices the transactions were struck at.

Frasers has used the same strategy to buy a stake in German fashion group Hugo Boss (BOSS:XETRA) where it holds a stake of around 4% comprised of shares and sold put options.

EXPERT VIEW

Frasers’ founder and largest shareholder Mike Ashley has a history of buying up struggling retailers, which haven’t always turned out well financially.

Investment director at AJ Bell Russ Mould said: ‘The retailer recently built up a 21.3% stake in AO, thereby giving it exposure to the electricals sector and the investment in Currys via financial instruments continues this theme.’

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor of the article (James Crux) own shares in AJ Bell.

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