Macy's Options Bears Caught Off Guard After Earnings

M stock bounced off a new low yesterday to finish higher

Karee Venema
May 15, 2019 at 9:22 AM
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Macy's Inc (NYSE:M) stock is up 3.4% in electronic trading, after the department store chain reported stronger-than-forecast first-quarter adjusted profit of 44 cents per share on in-line revenue of $5.5 billion. Plus, same-store sales climbed 0.7% in the three-month period -- more than analysts were expecting -- "supported by the Growth50 stores and Backstage," according to CEO Jeff Gennette."

Looking closer at the charts reveals M stock has been a long-term laggard. The retail shares have shed 48% since their Aug. 14 annual high of $41.99, and tagged a 19-month low of $21.08 yesterday, before closing at $21.80. And prior to Tuesday's win, Macy's had closed lower in seven straight sessions -- marking its longest daily losing streak since August 2017.

Against this backdrop, it's not too surprising to see so much skepticism priced into M shares. While nine of 10 covering analysts maintain a "hold" or worse rating on the equity, a healthy 12% of the stock's available float is controlled by short sellers.

Meanwhile, the May 20 put is home to peak open interest on Macy's stock, with 9,140 contracts outstanding. Data points to buy-to-open activity at this front-month strike, which expires at the close this Friday, May 17. While some of the action here may have been at the hands of shareholders initiating an options hedge, traditional bears likely initiated the long puts to brace for a post-earnings retreat for M.


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