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Macy’s Call Options On Trend As Shares Extend Rally

Today’s tickers: M, HLF, CSC & WSM

M - Macy’s, Inc. – The department store operator’s shares are on a tear following better-than-expected retail sales data out earlier in the week. Macy’s, Inc. shares tacked on another 2.6% today to secure a four-year high of $34.80. Trading in call options on the retailer is outpacing that of puts roughly 2.5 contracts to one, with overall volume up at 18,000 lots as of 12:45 PM in New York. Investors snapped up out-of-the-money calls in the front month, suggesting the stock may have more room to run in the near term. Call buyers looked to the Jan. $35 strike, picking up around 1,400 contracts for an average premium of $0.58 a-pop. Volume was heaviest up at the Jan. $36 strike where more than 4,200 calls traded against open interest of 1,463 contracts. Trading traffic in the calls was mixed, with buyers and sellers facing an average premium of $0.26 apiece. Finally, far out-of-the-money call options with a low probability of landing in-the-money at expiration attracted traders willing to pay an average premium of $0.09 apiece for roughly 2,000 contracts at the Jan. $38 strike. Investors long the $38 strike calls profit at expiration if shares in Macy’s jump 9.5% to top $38.09.

HLF - Herbalife, Ltd. – Shares in the provider of weight management products rallied 1.6% to $52.04 this morning, but the stock has underperformed some competitors since the start of the New Year. Weight Watchers shares are currently up 17.8% year-to-date, while Herbalife’s shares have lost 1.2% of their value in the same period. Though the stock is presently in the red for the new calendar year, activity in HLF call options suggests some traders are positioning for substantial gains in the name ahead of February expiration. Investors traded more than 2,000 calls at the Feb. $55 strike against open interest of 903 contracts, and appear to have purchased most of the contracts at an average premium of $1.47 apiece. Call buyers may profit at expiration next month if shares in Herbalife surge 8.5% to exceed the average breakeven price of $56.47. The Company’s VP of Investor Relations is scheduled to present at the 14th Annual ICR XChange Conference next week.

CSC - Computer Sciences Corp. – Put options on the IT services provider are active today, with shares in the name down 1.8% at $23.88 in early-afternoon trade. Investors appear to be taking bearish positions in the options that suggest the shares may be headed for their lowest levels in more than a decade. Computer Sciences Corp.’s rating was cut to BBB+ at Standard & Poor’s in December, and was placed on negative watch for a possible downgrade at Moody’s Investors Service and Fitch Ratings. Investors prepared for shares in CSC to pull back purchased put options across multiple expiries, with Mar. and Jun. expiration puts attracting the heaviest volume. The Jun. $20 strike put traded more than 5,000 times against open interest of 459 contracts this morning. Much of the volume appears to have been purchased for a premium of $2.00 each. Profits may be available at expiration in June in the event that CSC’s shares plunge 24.6% to breach the breakeven price of $18.00. Computer Sciences Corp.’s shares have not traded below $18.00 since the mid 90s. CSC is scheduled to report third-quarter earnings on February 8 ahead of the opening bell.

WSM - Williams-Sonoma, Inc. – The home products retailer had a rough first trading session this week after a downgrade to ‘sell’ from ‘neutral’ at Janney Montgomery helped push shares in Williams-Sonoma down 5.0% to $36.63 on Tuesday. Shares in the name bounced back during the week, however, to today trade as high as $38.57. Call options in the front month are the most actively traded contracts on WSM so far in the session, with some 2,740 in-the-money calls changing hands at the Jan. $38 strike against open interest of 1,477 positions. It looks like traders are buying most of the call options for an average premium of $1.51 each. Call buyers may profit at expiration day if the price of the underlying increases 3.2% over the current traded price of $38.29 to trade above the breakeven point at $39.51.

 

Caitlin Duffy

Equity Options Analyst


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