2 Retail Stocks Seeing Heavy Options Trading Ahead of Earnings

The stocks both have a history of volatile post-earnings price action

by Karee Venema

Published on Feb 27, 2018 at 3:04 PM
Updated on Feb 27, 2018 at 3:04 PM

Retail stocks are in focus today, with shares of Macy's (M) and Dillard's (DDS) gapping higher after the department stores reported earnings earlier. Sector peers J C Penney Company Inc (NYSE:JCP) and Kohl's Corporation (NYSE:KSS) are both slated to unveil their quarterly results later this week, and options traders are blasting the equities this afternoon.

J C Penney Options Traders Target April Calls

Nearly 40,000 calls and 19,000 puts have changed hands on J C Penney so far today -- five times what's typically seen at this point in the day, and total options volume pacing in the 91st annual percentile. Traders may be purchasing new positions at the April 4.50 call, betting on more upside for the retail stock over the next two months.

Sector tailwinds sent JCP stock up more than 14% earlier, but the rally stalled near $4.75 -- site of its mid-August pre-bear gap close. The shares were more recently seen trading up 1.6% at $4.23, but remain well above their Nov. 8 record low of $2.35 -- and are on track for a third straight close north of 200-day moving average, a feat not accomplished since December 2016.

Friday could be volatile for J C Penney stock with the retailer slated to report ahead of the open, considering the shares have averaged a single-session post-earnings move of 9.9% over the past eight quarters, regardless of direction, with the options market pricing in a bigger swing of 17.6% this time around. However, history doesn't provide any clues as to which way the shares might go, considering there have been four positive and four negative earnings reactions in the last two years.

Kohl's Stock Hit a Two-Year High Before Swinging Lower

Kohl's has seen roughly 8,500 puts and 6,500 calls traded so far today, four times the expected intraday amount, and volume pacing in the 94th annual percentile. Most active is the weekly 3/2 65-strike put, where it looks like traders may be selling to open new positions -- possibly hoping to profit on a post-earnings volatility crush. Elsewhere, speculators could be buying to open weekly 2/23 64-strike puts.

Looking at the charts, KSS stock hit a two-year high of $69.48 earlier, but was last seen trading down 2.6% at $65.35. The shares are still up 20.5% year-to-date, with possible support just below at their rising 30-day moving average, currently located at $64.89 -- site of today's intraday low.

Kohl's is scheduled to report earnings before the market opens on Thursday, and the options market is pricing in an 11.7% single-day move after the results. Over the past eight quarters, the shares have swung 7.1%, on average, in the session subsequent to earnings, and have finished higher the next day five times.

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