Macy's Inc (M) Option Bulls Undeterred by Bearish Note

Macy's Inc's (M) October and November 36 calls are seeing buy-to-open activity

Alex Eppstein
Oct 14, 2016 at 3:10 PM
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Macy's Inc (NYSE:M) is getting mowed down today, losing 3.5% to trade at $35.53. J.P. Morgan Securities is turning up the heat on retail stocks, and for M, this has meant a price-target cut to $40 from $44 -- with the brokerage firm expecting third-quarter same-store sales to fall. Despite the selling pressure, options traders appear to be setting their sights higher.

Currently, M call options are being exchanged at twice the usual intraday rate. The 36 strike is very popular, with buy-to-open activity detected in both the October and November series, according to Trade-Alert. By purchasing the near-the-money calls, traders are counting on the underlying to rebound above $36 by the respective expiration dates, at the close next Friday and Friday, Nov. 18.

Short-term calls have been popular for a while now. In fact, the stock's Schaeffer's put/call open interest ratio (SOIR) of 0.35 indicates calls nearly triple puts among options expiring in the next three months. Plus, this SOIR ranks in the call-skewed 6th annual percentile.

No matter the motive, now is a great time to purchase premium on short-term strikes. M's Schaeffer's Volatility Index (SVI) checks in at 30%, lower than 89% of all readings from the past year. Not to mention, the Schaeffer's Volatility Scorecard (SVS) of 95 suggests the stock has tended to make bigger-than-expected moves in the last 12 months, relative to what the options market has priced in.

Turning to the charts, Macy's Inc (NYSE:M) is currently clinging to a year-to-date lead of less than 2%. Looking more closely, given today's losses, the shares have more or less closed their bullish gap from the company's August earnings report.

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