Large Macy's Option Trader Betting On A Rebound Year

Macy's Inc M was one of the worst-performing stocks in the entire S&P 500 in 2019, but at least one large option trader is betting on a Macy’s rebound in 2020.

On Friday, two large bullish Macy’s option trades suggest Macy’s may find a way to stop the bleeding this year.

The Trades

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

• At 11:02 a.m. a trader bought 1,000 Macy's call options with a $15 strike price expiring in January 2021 at the ask price at $3.25. The trade represented a bullish bet worth $325,000.
• At 11:05 a.m., a trader bought 670 Macy's call options with a $17 strike price expiring on January 17, 2020 near the ask price at 43 cents. The trade represented a $28,810 bullish bet.

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 modest size of the two Macy's trades by institutional standards, they are unlikely to be hedges.

See Also: Large Apple Option Traders Kick Off 2020 With Heavy Call Buying

Can Macy’s Find An Answer?

Macy’s shares underperformed in 2019 due in large part to headwinds from online competitors that many experts believe will not ease in 2020.

A recent 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 holiday-quarter earnings report expected out in late February.

In November, Macy’s reported a 3.5% drop in same-store sales, worse than the 1% drop analysts had been expecting. Management also said the company’s online sales growth dropped last quarter, and Macy’s lost online market share due to pricing cuts by competitors.

Even after a difficult year, Wall Street isn’t expecting things to get any easier for Macy’s in 2020. In December, Morgan Stanley reiterated its Underweight rating and cut its price target to just $13, suggesting more than 20% of additional downside ahead.

Benzinga’s Take

The good news for Macy’s bulls is that the larger of the two Friday trades involves calls that don’t expire for another year, suggesting it's not simply a short-term play on a technical bounce.

In fact, the January 2021 Macy’s calls have a break-even price of $18.25, which implies the stock will gain at least 10.5% over the next 12 months.

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

Photo credit: Caldorwards4, Wikimedia