Unusual Options Activity: Macy’s (M)

Shares of department store chain Macy’s (M) rallied last week on news that the retailer would carry pop-up toy shops under the Toys “R” Us brand. One trader sees that trend continuing in the weeks ahead.

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  • That’s based on the September $21 calls. With 25 days until expiration, over 104,965 contracts traded against a prior open interest of 2,165, for a 49-fold rise in volume. The buyer paid about $1.80 to make the trade.

    The trade was made as shares topped $21.50, leaving them about $0.50 in-the-money at the moment.

    The department store chain rallied nearly 20 percent last week on its partnership news, adding to a rally over the past year that’s seen shares rise nearly 188 percent. Shares are also at a 52-week high.

    Even with that rally, shares are arguably undervalued. The stock trades at 9 times forward earnings, which may substantially improve with the addition of toy sales. While earnings have been slightly negative over the past year, revenue is up 55 percent, and in-person traffic appears to be back.

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  • Action to take: Shares don’t currently pay a dividend, so investors may want to look for a down day to buy shares ahead of the holiday season. The market has tipped off that it likes this partnership, and a more permanent deal may be in the works down the line.

    For traders, the September call options are interesting as they’re in-the-money, but don’t have a lot of time to play out. Consider a quick double-digit profit from here, or look for an option trade further out, potentially in January when early holiday sales will be known.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may make a trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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