Early Edge: Wal-Mart Stores and JCPenney Company

It's a big news day for retailers, including Wal-Mart Stores, Inc. (NYSE:WMT) and J C Penney Company Inc (NYSE:JCP)

Alex Eppstein
Aug 18, 2016 at 9:55 AM
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It's been a big day for news so far, especially on the biotech front. However, several retail names are also making waves, including Wal-Mart Stores, Inc. (NYSE:WMT) and J C Penney Company Inc (NYSE:JCP). Below, we'll explain why WMT and JCP are commanding so much attention, and how their respective headlines may be impacting options traders.

First off, WMT has jumped 2.6% to trade at $74.83, and earlier notched a new annual high of $75.19. Boosting the retail stock are better-than-expected quarterly earnings and same-store sales, plus an upwardly revised profit forecast. Adding to the momentum, Baird and Deutsche Bank lifted their respective price targets on the shares to $80 and $79.

This could have option bears on pins and needles. During the last 50 sessions at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 1.07 WMT puts for every call -- a ratio that ranks in the top quartile of its annual range. A capitulation among these skeptics could add fuel to the fire.

Another potential catalyst higher for Wal-Mart Stores, Inc. are upgrades. Of the 17 analysts tracking the shares, 13 rate them a "hold" or worse. Plus, the stock's consensus 12-month price target of $70.40 sits at a discount to current trading levels.

Meanwhile, fellow retailer JCP -- which recently released its own earnings numbers -- announced a major strategy shift late yesterday, with the department store operator promising to focus more on beauty products and home goods. It doesn't seem like Wall Street is particularly impressed by the announcement. At last check, the stock was down 1.6% at $10.58 -- though its year-to-date lead still stands at a gaudy 59%.

In the options arena, traders have either been betting on or hedging against a pullback in the shares. J C Penney Company Inc's 10-day ISE/CBOE/PHLX put/call volume ratio of 1.35 ranks just 15 percentage points from an annual peak. In other words, traders have been buying to open puts over calls at an accelerated clip of late.

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