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Can Macy's Defy the Wall Street Grinches?

M fans flocked to front-month calls

by 12/27/2012 9:01 AM
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Despite yesterday's sector headwinds, retailer Macy's, Inc. (NYSE:M - 37.13) attracted bullish holdouts in the options pits. During the course of the session, the stock saw around 11,000 calls cross the tape -- about three times the norm. For comparison, just 2,130 M puts changed hands.

Almost half the volume transpired at the January 2013 36-strike call, which saw close to 5,500 contracts traded. The bulk of the calls crossed at the ask price, and nearly all of the volume translated into new open interest, indicating buy-to-open activity.

More specifically, the front-month calls traded at a volume-weighted average price (VWAP) of $1.48, meaning the buyers will reap a reward if M climbs back above the $37.48 level (strike plus VWAP) within the next few weeks. However, even if M extends its recent retreat, the most the buyers stand to lose is the premium paid at initiation.

Technically speaking, M touched an intraday low of $36.30 yesterday, in territory not charted since early August. Pressuring the shares -- along with sector peers like Saks (NYSE:SKS) and Kohl's (NYSE:KSS) -- was the MasterCard Advisors Spending Pulse report, which showed holiday sales growth among U.S. retailers was the weakest since 2008. However, the aforementioned option bulls could believe the hype is overblown, and are picking up short-term calls ahead of Macy's expected same-store sales release on Thursday, Jan. 3.

From a broader sentiment standpoint, though, M is no stranger to optimism in the options arena. The stock sports a Schaeffer's put/call open interest ratio (SOIR) of 0.64, indicating that calls comfortably outnumber puts among options with a shelf-life of three months or less. What's more, this ratio sits just 6 percentage points from a 52-week low, implying that near-term option players have rarely been more call-heavy during the past year.


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