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Macy's Option Trader Makes Massive $2.5M Bearish Bet Ahead Of Earnings

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Macy's Option Trader Makes Massive $2.5M Bearish Bet Ahead Of Earnings

Macy’s Inc (NYSE: M) shares traded higher by 1% on Tuesday ahead of the company’s third-quarter earnings report due out next week.

On Tuesday, the largest of a series of Macy’s option trades were more bearish than bullish, suggesting smart money is expecting Macy's to drop the ball on its third-quarter report.

The Trades

On Tuesday, Benzinga Pro subscribers received 12 option alerts related to unusually large trades of Macy's options. Here are a handful of the biggest:

  • At 9:37 a.m. a trader bought 14,000 Macy's put options with a $17 strike price expiring on Nov. 22 above the ask price at $1.84. The trade represented a bearish bet of more than $2.57 million.
  • Less than a minute later, liely the same bought 656 Macy's put options with a $16.50 strike price expiring on Nov. 22 near the ask price at $1.543. The two trade represented a more than $101,220 bearish bet.
  • At 10:04 a.m., a trader sold 923 Macy's call options with a $16 strike price expiring on January 17, 2020 near the bid price at $1.501. The trades represented an $138,542 bearish bet.
  • At 10:21 a.m., a trader bought 2,531 Macy's call options with a $16.50 strike price expiring on Nov. 22 near the ask price at 88.1 cents. The trade represented a $222,981 bullish bet.

Of the 12 total large Macy's option trades on Tuesday morning, six were calls were purchased at or near the ask, trades typically seen as bullish. Five of the remaining trades were calls sold at the near the bid or puts purchases at or near the ask, trades typically seen as bearish. One trade took place at the midpoint, which is typically considered neutral.

But while the number of large trades was roughly divided evenly between bullish and bearish, three of the four largest trades, including the $2.57 million put purchase, were all bearish.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively large size of the largest Macy's trades and the fact there were so many large trades make it likely that at least some of the trades were institutions hedging against large positions in Macy's stock.

Macy’s In Secular Decline?

The large option trades in Macy's come after a new UBS survey found that 25% of U.S. apparel sales are now made online. UBS said that share is expected to grow to 31% by 2023.

That trend doesn’t bode well for mall retailers like Macy’s ahead of their huge upcoming holiday sales season.

In August, Macy’s reported second-quarter same-store sales growth of just 0.3%, missing on both earnings and revenue. Analysts are expecting third-quarter revenue to drop 1.1% to $5.34 billion, while EPS is expected to plummet from 27 cents a year ago to just 1 cent.

Benzinga’s Take

The bad news for Macy's bulls on Tuesday is that, while there were both bullish and bearish trades, many of the biggest trades were bearish in nature, assuming they did not represent hedges.

It’s also important to note most of the largest trades were in Nov. 22 contracts, suggesting the trades are likely a pure-play on earnings and fourth-quarter guidance rather than a longer-term bet on the company.

Macy's traded around $16.08 per share at time of publication.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

JD.com Option Traders Betting Big On Earnings Beat

How To Read And Trade An Options Alert

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