U.S. stock futures are hovering just above breakeven this morning, as another round of earnings in the retail space from J.C. Penney Company Inc (NYSE:JCP) failed to inspire gains in the broader market. Meanwhile, a broader look at retail will arrive this morning in the form of the July retail sales and producer prices reports. Finally, crude oil is set to gain nearly 5% on the week on hopes of a production freeze out of Saudi Arabia.
Against this backdrop, futures on the Dow Jones Industrial Average has crept 0.08%higher, while S&P 500 futures have added 0.09% and Nasdaq-100 futures are up 0.06%.
Options activity ramped up heading into weekly August 12 series expiration, with 14.2 million calls and 11.6 million puts crossing the tape. The heavy bias toward call activity carried over into the CBOE, as the single-session equity put/call volume ratio dipped to 0.61. The 10-day moving average slid to a four-week low of 0.62.
The retail sector was a juggernaut in the options pits yesterday, with Macy’s Inc (NYSE:M) leading the way following a strong quarterly performance and the closure of more than 100 stores. Meanwhile, J.C. Penney Company rode Macy’s coattails higher heading into its own earnings report this morning, and Nordstrom, Inc. (NYSE:JWN) followed suit.
Macy’s Inc (M)
M stock rocketed more than 17% higher on Thursday, driving heavy speculation in the options pits. Macy’s posted better-than-expected second-quarter earnings of 54 cents per share on sales of $5.87 billion, compared to Wall Street’s expectations for a profit of 40 cents on sales of $5.75 billion. Macy’s also announced plans to close 100 of its brick-and-mortar stores, about 14% of its total, in a move to focus on online sales.
As a result, Macy’s saw record short-term options volume, with more than 342,000 contracts changing hands yesterday. Furthermore, calls made up 60% of the day’s total activity, as traders attempted to ride M stock’s rally.
M stock was unable to take out round-number resistance at $40, but the shares are now trading north of most major call open interest strikes in the August and September series. That said, look for options traders to zero in on the $40 strike over the short term, with puts gaining popularity if M stock fails to make headway with resistance in the area.
J.C. Penney Company Inc (JCP)
JCP stock rallied in sympathy with M shares yesterday, gaining more than 8.5% following Macy’s quarterly report. However, the shares are heading lower this morning following a mixed report. J.C. Penney reported a second-quarter loss of five cents per share, besting Wall Street’s expectations for a loss of 14 cents per share. Revenue was $2.92 billion, just missing the consensus estimate of $2.93 billion. Penney reaffirmed its full-year guidance and said same-store sales should rise 3% to 4% versus a consensus of 2.2%.
With Macy’s already in the bag, JCP options traders were looking to fade the retail rally. Overall volume came in well above average, with about 335,000 contracts changing hands. However, puts made up the bulk of JCP’s activity, accounting for 52% of the day’s take. With JCP off more than 1% premarket, these puts may have been smart money.
Nordstrom, Inc. (JWN)
Rounding out our retail coverage this morning, Nordstrom offered up mixed results, posting a second-quarter profit of 67 cents per share on revenue of $3.65 billion. Wall Street was looking for earnings of 56 cents per share on $3.68 billion in revenue. However, investors cheered when Nordstrom upped its full-year guidance to $2.60 to $2.75 per share from its previous outlook for $2.50 to $2.70 per share.
JWN stock options traders were also looking to fade the retail rally, with puts accounting for 54% of the roughly 300,000 contracts traded on the session. Following a 7.5% gain yesterday, JWN stock is up roughly 11.5% premarket, placing the stock well north of all major call and put OI strikes.
What’s more, JWN has put resistance at $50 and its 200-day moving average in the rearview, and, following a consolidation period, the shares could make a run at $55 in the next several weeks.
The $55 strike is the next major hurdle for JWN, as it is home to more than 6,700 calls in the September series.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.
