Nordstrom Options Traders Active After Profit Warning

Call buying has been popular on JWN recently

Jan 16, 2019 at 2:36 PM
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The shares of Nordstrom, Inc. (NYSE:JWN) are trading down 4.9% at $44.97 -- fresh off a 14-month low of $43.04 -- after the department store said its full-year adjusted profit will likely arrive at the lower end of its projected $3.55-$3.65 per share range, following a tame 0.3% rise in same-store sales during the holiday season. This echoes a similar warning from sector peer Macy's (M), and has sparked a rush of activity in among analysts and options traders.

In fact, both Goldman Sachs and Telsey Advisory downgraded JWN stock to the equivalent of a "neutral" rating, with the former removing the retailer from its "Americas Conviction List." Plus, Credit Suisse cut its Nordstrom price target to $50 from $55.

At last check, around 5,400 puts and 3,800 calls were on the tape, about four times the expected intraday amount. The January 2019 45-strike call is most active, and it's possible traders are buying to open new positions for a volume-weighted average price of $0.38. In this case, call buyers expect JWN shares to rebound back above $45.38 by tomorrow's close, when front-month options expire.

Widening the scope reveals call buying has been a popular options strategy on JWN in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 4.18 ranks in the 82nd annual percentile, meaning long calls have been initiated over puts at an accelerated clip.

Some of this activity could be at the hands of shorts guarding their bearish bets against any upside risk. Short interest rose 5.9% in the most recent reporting period to 18.57 million shares. This represents almost 16% of Nordstrom's available float, or 6.4 times the average pace of trading.

On the charts, JWN stock sold off sharply in the fourth quarter, sliding 22.1% in part because of a nearly 14% post-earnings plunge in mid-November. The shares are now set to snap their three-week win streak, and are pacing for their first weekly close below $45 since late 2017.

weekly jwn chart jan 16

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