Macy's Inc (NYSE:M) was one of the worst-performing stocks in the entire S&P 500 in 2019, and is off to a horrendous start to 2020 thanks to COVID-19.

One large bearish Macy’s option trade suggests at least one trader sees more pain ahead for the mall retailer.

The Trade

On Monday, Benzinga Pro subscribers received the following option alert related to an unusually large Macy’s option trade:

• At 10:26 a.m. a trader bought 1,026 Macy's put options with a $14 strike price expiring on May 15 near the ask price at $8.601. The trade represented a bearish bet worth $882,462.

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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 Macy's trade, it could represent an institutional hedge.

Can Macy’s Find An Answer?

The large bearish option trade comes the same day Macy’s announced most of its current employees will go on furlough starting this week. In the wake of the COVID-19 outbreak, Macy’s has previously suspended its dividend, drawn down $800 million from its credit line, issued a hiring freeze and cancelled certain orders.

Last week, Cowen analysts estimated Macy’s has about five months worth of cash on its balance sheet.

Macy’s shares underperformed in 2019 due in large part to headwinds from online competitors that many experts believed would not ease in 2020 even prior to the coronavirus outbreak.

In February, Macy’s reported a 0.5% drop in same-store sales, slightly better than the 0.9% drop analysts had been expecting. Management told investors that 2020 would be a transition year for the company and reiterates its full-year guidance for same-store sales to drop between 1.5% and 2.5% this year.

Even with Macy’s shares down 76.9% overall in the past year, Wall Street remains bearish on Macy’s. On March 19, Morgan Stanley reiterated its Underweight rating for Macy’s and cut its price target to $10. Last week, Citigroup reiterated its Sell rating and cut its target to $5.

Bullish sentiment among StockTwits messages mentioning Macy’s was at 49% on Monday, down from its 2020 high of 86.6% on Feb. 1.

Benzinga’s Take

The bad news for Macy’s bulls is that the puts purchased on Monday don’t expire until mid-May, suggesting more than six weeks of additional pain ahead. The good news is that the May Macy’s puts have a break-even price of $5.40, which implies only about 2.3% downside from current levels.

Do you agree with this take? Email [email protected] with your thoughts.