Put Options Pick Up Ahead of Macy's, Inc. (M) Earnings

If past is prologue, Macy's, Inc. (M) could stumble after its earnings report tomorrow morning

by Alex Eppstein

Published on May 10, 2016 at 2:58 PM

Ahead of the firm's earnings report -- due tomorrow morning -- Macy's, Inc. (NYSE:M) is one of the worst-performing S&P 500 Index (SPX) stocks. At last check, the retail stock is down 1.9% at $37.03, and has lost 18.6% since its year-to-date high of $45.50 in mid-March. Not surprisingly, the shares' intraday struggles have put options trading at a brisk pace.

By the numbers, around 27,000 M puts have been exchanged, or 10 times the amount expected at this point in the day. The most active strike is the out-of-the-money May 36 put, and data from the International Securities Exchange (ISE) confirms a mix of buy- and sell-to-open activity. Put buyers are looking for M to breach $36 by next Friday's close, while the sellers hope that level can hold as support.

Taking a step back, according to the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), today's activity represents the continuation of a trend. Specifically, during the past 10 weeks across those exchanges, options traders have sold to open 7,775 puts and bought to open 7,308. Furthermore, short-term puts are much more popular than calls, per M's top-heavy Schaeffer's put/call open interest ratio (SOIR) of 2.47 -- which rests 4 percentage points from an annual high.

Based on Macy's, Inc.'s (NYSE:M) earnings history, it isn't a shock to see options traders gravitating toward puts over calls. Over the last eight quarters, the retail stock has moved lower six times in the session subsequent to the company's quarterly report -- with an average loss of about 5%. This time around, the options market is pricing in an even sharper move of 9.7%, in either direction.

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