Options traders find themselves fairly divided over where Macy’s earnings report could take the embattled stock.
The department store name is down nearly 60% this year and has completely failed to bounce off its lows the way the XRT Retail ETF that tracks the space was able to. As a broader whole, retail is up 14% on the year, while Macy’s languishes in the doldrums.
However, Macy’s underperformance doesn’t mean that options traders are leaving the name for dead. In fact, plenty of traders are jockeying for position as the name gears up for Wednesday’s report.
“[Macy’s] traded about three times the average daily put volume. Right now, the options market is implying a move of about 16% in either direction — that compares to about 7.1% for the past eight reported quarters,” Optimize Advisors CIO Michael Khouw said Monday on CNBC’s “Fast Money.”
Interestingly, Monday’s largest trade in the name was made by a trader who seems to be calling the market’s bluff, betting that Macy’s will stay within the range of the implied move.
“The biggest trade we saw was a sale of the [Sep. 4] weekly 6-strike puts,” said Khouw. “That sale took place for around 20 cents [per contract]. The seller of those puts is obviously willing to get long the stock at that $6-strike price. That’s considerably lower than the $7, or so, where the stock currently closed, so it would actually have to move that 16% or more before the put seller saw any losses.”
Conversely, the buyers of the contracts sold by this trader are betting that the opposite will happen. Their thesis is that the stock will drop below the $5.80 break-even level by Friday, allowing them to get out of their equity position at a higher price.
Macy’s was trading about 1% higher in Tuesday’s session.