Retail Sector Coming Back

On Tuesday, the Commerce Department reported that retail sales rose for the seventh straight month in January. The increase of 0.3% was the smallest since June; however, the metric was in line with analysts’ expectations, and it represents a continued willingness on the part of consumers to go shopping. This coming weekend, retailers will be holding all sorts of Presidents Day sales. If those sales are enticing enough, they just may bring buyers in droves.

If the shopping continues, it could mean a continuation of the powerful bull market we’ve seen in retail stocks for the past five-plus months. How powerful has this sector bull been? Since hitting its August nadir, the SPDR Retail ETF (NYSE: XRT) is up nearly 37%. For options players, a continuation of the bull market in retail stocks is something that can be taken advantage of with some well-placed call options. Here are five retail options trades to keep your portfolio in style.

Amazon.com

When you’re talking retailers, you’re talking Amazon.com (NASDAQ: AMZN). The online seller of just about everything under the sun (or down the river as it may be) is a proven retail winner through just about any shopping season, and Presidents Day is no exception. The stock currently trades just under $190, and that gives Amazon bulls the chance at a very nice profit by using the slightly out-of-the-money AMZN Mar 195 Call.

This contract got pounded in Tuesday trade on news that Apple (NASDAQ: AAPL) was breaking from its past practice that banned its apps customers from buying subscriptions and other digital content from within the app on its iPhone and iPad devices. I suspect this news is a mere blip for Amazon, and as such you can pick up this call option at a discount.

 

Best Buy

Electronics retailer Best Buy Co. Inc. (NYSE: BBY) made a big splash during Super Bowl XLV with its commercials announcing a “future proof” buy-back program. The company now has extended that buy-back plan to its über-profitable Best Buy Mobile division. The new program covers smart phone purchases and tablet computers, including the Apple iPad.

Best Buy bulls expecting a rebound in the stock should look at the BBY Mar 35 Call. The stock currently trades at $32.67, and that makes these out-of-the-money calls a profitable trade on any significant bounce in the retailer’s shares. Open interest in the strike is healthy too.

 

Macy’s

Department store retailer Macy’s, Inc. (NYSE: M) has a long history of delivering retail profits. In November the company reported a solid third-quarter profit as earnings topped Wall Street forecasts. The company benefited mightily from the return of upscale customers to its high-end Bloomingdale’s stores. Macy’s also reiterated its raised outlook for the second half and full year.

We’ll know if Macy’s continued to outperform in the fourth quarter very soon, as the company is slated to release earnings on February 22. If that report is good, then look for the out-of-the-money M Mar 25 Call to deliver traders a nice gain.

 

Tiffany & Co.

Luxury goods stalwart Tiffany & Co. (NYSE: TIF) is a retailer that’s a godsend for just about every gift-challenged gentleman out there. That’s because the ladies love this company’s products, as you really can’t go wrong with the treasure found in that little blue box. In November, we saw some ramped up call buying in TIF just ahead of the company’s earnings release. We haven’t seen that yet this quarter, but then Tiffany isn’t due to report earnings until March 21.

I suspect we will see some call buying again in anticipation of these earnings, and that means the out-of-the-money TIF Mar 70 Call could see a big bounce. These calls certainly have been beaten down of late, but that just means bigger upside if the retail bulls stampede again.

 

Wal-Mart Stores

Retail mega-giant Wal-Mart Stores (NYSE: WMT) is a barometer for the retail sector at large, although it’s a much better measure of how much shopping low-to-moderate income earners are willing to do. Like Macy’s, Walmart will report earnings on February 22. It’s then that we’ll see just how much money shoppers spent at the world’s biggest retailer.

If you suspect these results will be strong—and I certainly do—then one way to take advantage of that suspicion is with the WMT Mar 57.50 Call. This out-of-the-money contract has traded higher of late, so now may be a good time to jump on board while the price remains attractive.

At the time of publication, Jim Woods held no positions in any of the stocks mentioned in this article.