Options Heat Up as 2 Retail Stocks Rally

Nordstrom, Inc. (JWN) and Sears Holdings Corp (SHLD) are both getting a boost on upbeat comments about the retail sector

by Kirra Fedyszyn

Published on Jun 15, 2016 at 3:30 PM
Updated on Jun 24, 2020 at 10:16 AM

Retail stocks are getting a boost today on upbeat comments from PVH Corp (NYSE:PVH) CEO Manny Chirico. Among those climbing the charts are Nordstrom, Inc. (NYSE:JWN) and Sears Holdings Corp (NASDAQ:SHLD) -- which are both seeing some unusual options action, as well.

JWN is trading 2% higher at $37.41 today, but is still off nearly 25% in 2016. Prior to today, the shares had underperformed the S&P 500 Index (SPX) by more than 37 percentage points over the last three months, and hit a four-year low of $36.19 less than one month ago, following a bleak earnings showing. Unsurprisingly, the stock hasn't seen much love from analysts lately, with 12 out of 18 rating JWN a "hold" or worse. And short interest on the equity climbed by more than 20% during the two most recent reporting periods to account for nearly one-third of JWN's available float. At the stock's typical pace of trading, it would take more than a week to cover all those bearish bets.

Options traders have shown a little more enthusiasm recently. In fact, the stock's 10-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) now sits at 1.22 -- higher than 71% of the past year's readings.

Today, JWN calls are trading hands at twice the average intraday rate, outnumbering puts more than 4-to-1 -- the intraday put/call volume ratio of 0.24 sits lower than 94% of all comparable readings in the last 12 months. The most active option for the day is the July 40 call, followed by the June 37.5 call. The ISE confirms buy-to-open action at both of these strikes, meaning the call buyers are betting on Nordstrom, Inc. (NYSE:JWN) continuing its rally through the front- and back-month options expiration.

And if JWN has been having a rough year, SHLD has been downright depressing, giving up more than 51% of its value in the past 12 months, and hitting an all-time low of $10.52 in the historically bad month of May. Today the shares are getting a big boost, however, up 9% to $13.30. This upbeat price action is clearly not what traders have been expecting. At the moment, nearly 64% of SHLD's total float is sold short -- an increase of 15.3% during the last two reporting periods, and representing almost two weeks' worth of trading, at the stock's average daily volume.

Bearish sentiment has been strong among options traders, too. SHLD's 10-day put/call volume ratio of 7.51 on the ISE, CBOE, and PHLX shows long puts outpacing calls nearly 8-to-1 during the past two weeks. Moreover, this ratio ranks in the 97th percentile of its annual range.

If today's action is any indication, option bears don't seem to being buying SHLD's bounce. The stock's puts are crossing the tape at two times their expected intraday rate, with more than six SHLD puts changing hands for each call -- an intraday ratio higher than 93% of the past year's readings.

However, it appears much of this action is coming from LEAPS players initiating long-term bearish bets, buying to open the January 2018 8 and 10 puts. The put buyers are looking for the shares to skid well into multi-year-low territory over the next year-and-a-half. Focusing more on the near-term, it looks like some speculators may be purchasing new positions at the September 13 put, expecting Sears Holdings Corp (NASDAQ:SHLD) to continue its longer-term decline through summer.

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