Unusual Options Activity: Macy’s (M)

Department store Macy’s (M) has struggled in recent years, and the stock is down by about one-third over the past year. One trader sees a further decline in the months ahead.

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  • That’s based on the July $13 puts. With 51 days until expiration, 20,077 contracts traded compared to a prior open interest of 181, for a 111-fold jump in volume on the trade. The buyer of the puts paid $1.40 to make the bearish bet.

    Macy’s shares traded just over $14, making this an at-the-money trade. It’s also right at the stock’s 52-week low.

    Earnings dropped by 31 percent over the past year, and revenue slid by about 5 percent.

    The retailer is likely to continue to struggle as department stores are squeezed by lower-cost retail offerings across their various brands, and as traffic in physical stores has largely moved to big-box chains.

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  • Action to take: While shares certainly look inexpensive at 4 times forward earnings, the company is priced for business to continue declining in the years ahead.

    Plus, the company’s debt levels, at about 150 percent of its equity, make the company tough to buy on balance sheet concerns.

    For traders, there’s likely more downside for department store chains ahead. The July puts are inexpensive for being at-the-money, and can likely give traders a mid-double-digit gain by expiration.


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

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