Large Option Trader Buys Nordstrom Puts Following Big Earnings Jump

Nordstrom, Inc. JWN shares rocketed higher on Thursday after another big earnings beat from the company. Some mixed large option trades on Thursday suggest at least some deep-pocketed traders remain skeptical.

The Trades

On Thursday, Benzinga Pro subscribers received 14 option alerts related to unusually large Apple trades. Here are a handful of the biggest:

• At 10:18 a.m., a trader bought 745 Nordstrom call options with a $26.50 strike price expiring on Friday near the ask price at $3.691. The trade represented an $274,979 bullish bet.
• At 11:33 a.m., a trader sold 1,526 Nordstrom call options with a $30 strike price expiring on Sept. 6 at the bid price of $1.40. The trade represented a $213,640 bearish bet.
• At 11:36 a.m., a trader bought 750 Nordstrom call options with a $30 strike price expiring on Oct. 18 at the ask price of $2.25. The trade represented an $168,750 bullish bet.
• At 12:28 p.m., a trader bought 7,001 Nordstrom put options with a $32.50 strike price expiring on Jan. 17, 2020 near the ask prices of between $4.586 and $4.715.

The series of trades represented a more than $3.2 million bearish bet.

While option trading on the day was mixed, the big $3.2 million bearish bet stood out as a bold gamble that Nordstrom shares will be trading at or below $27.91 within five months. That price suggests nearly 9.5% downside from where Nordstrom shares were trading on Thursday.

Why It’s Important

Due to the relatively complex nature of the options market, options traders are generally considered to be more sophisticated than the average stock trader. In addition, large options traders are often professional, wealthy individuals or institutions, either of which could have unique insight or information about a company.

Even traders who stick exclusively to stocks watch the option market closely for unusual trading activity as an indicator of where the “smart money” is focusing.

Unfortunately, because stock investors often use put options to hedge larger bullish stock positions, there’s no way to be 100% certain whether an option trade is a standalone purchase or a hedge against a stock position.

In this instance, the $3.2 million trade could easily have been a hedge on a bullish institutional long position.

What's Next

Nordstrom earnings beat extremely low expectations on Wednesday, with the company beating consensus EPS estimates by 20%. Revenue was a bit softer than expected.

Nordstrom also cut its full-year sales growth guidance to -2%. The company had previously guided for growth of between 0% and -2%. In addition, the company slightly lowered the high end of its full-year EPS guidance range.

Fortunately for Nordstrom investors, it appears the stock had priced in a much steeper guidance cut given Thursday’s relief rally. Even after the big gain, Nordstrom shares are still down more than 50% overall in the past year.

Assuming the large Thursday put buyer wasn’t hedging a long position, the trader may see Thursday’s relief rally as unsustainable for Nordstrom given a secular decline in the mall retail business. The trader may believe reality will set in for Nordstrom investors this holiday shopping season.

Nordstrom's stock traded higher by 13.5% to $30.10 per share at time of publication.

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