The market has seen unexpected rallies in a few “zombie retailers,” as top analyst Jeff Macke calls them, with options often leading the way. But unusual activity has turned from calls to puts in some cases, providing valuable tells ahead of declines.
The end of stimulus checks has been speculated as one reason for the shift; others blame overall market caution ahead of the election. No matter what the cause, it shows that sharp reversals in momentum–positive and negative–are not confined to high-flying tech stocks.
Bed Bath & Beyond ($BBBY) has been a good example of how unusual option activity has navigated the trends in both directions. On a Market Rebellion Cocktail Hour in September, we noted bullish paper that preceded a jump in $BBBY shares from about $14 to above $26 in less than a month. Since mid-October, however, four out of five entries have been bearish–with most of them just in the last three trading sessions. During this latest turn, $BBBY went from a high of $26.16 to a low of $19.53 in a move of more than 25%:
–Oct. 15: 8,000 November 24 puts bought for $2.35 to $2.56 above open interest of 112 contracts. Stock $24.02-$24.17.
–Oct. 27: 5,600 30October 23 puts mostly bought for $0.33 to $0.56 above open interest of 1,651 contracts. Stock $24.04. Follows November 24 put buying on Log 10/15.
–Oct. 29: 4,600 January 24 puts bought itm at the same time for $4.60 to $4.75 above open interest of 688 contracts. Stock $21.77.
–Oct. 30: 4,000 January 21 puts bought for $3.60 to $3.75 above open interest of 404 contracts, 4,000 January 24 puts sold for $5.55 to $5.71 below open interest of 5,045. Stock $19.97. Rolls puts posted on Log in previous session.
Less dramatic but also noteworthy was Nordstrom ($JWN), which traded between about $11.88 and $14.34 alongside bullish option activity that began in early October. But after three bearish trades in four sessions this week, $JWN fell to $11.88 yesterday, near its 52-week low of $11.72 from Sept. 27:
–Oct. 26: 2,000 30October 14.50 puts bought for $0.75 to $0.90 above open interest of 180 contracts. Stock $13.93.
–Oct. 27: 2,000 April 10 puts bought at the same time for $1.43-$1.44 above open interest of 1,533 contracts. Stock $12.58.
–Oct. 29: 2,880 January 7.50 puts bought in one print for $0.30 above open interest of 1,430 contracts. Stock $12.26.
A bearish turn has been evident in the broader space as well. The SPDR S&P Retail ETF ($XRT) has also weakened with downside option activity in the last two weeks as its shares traded from $55.26 to $49.39. (See chart above courtesy of quant Bryan McCormick, who notes that a bearish cup-and-handle pattern could be active below the indicated support line.)
On Oct. 15, the $XRT saw 7,500 30October 54 puts bought for $0.98-$1.10 above open interest of 87 contracts, with shares trading $54.60-$54.92. Those premiums quadruped as the stock closed at $49.84 yesterday. During the session we also noted that 3,900 November 48 puts were bought for $1.38 above open interest of 1,101 contracts, with shares at $49.92.
The SPDR S&P Homebuilders ETF ($XHB) has been another one to watch. Despite its name, this exchange-traded fund counts several retailers among its top holdings, including Williams-Sonoma ($WSM) and Whirlpool ($WHR) along with Home Depot ($HD) and Lowe’s ($LOW).
The $XHB had 6,200 January 50 puts bought for $1.55 above open interest of 523 contracts, with shares at $55.50, on Oct. 21. That stock closed the week at $51.98.
Lastly, take a look at what happened to Columbia Sportswear ($COLM) yesterday. We didn’t have any unusual option activity in it, but the stock plunged 22.52% after reporting earnings (chart below). That’s not something seen very often with retail names but, in this environment, anything can happen.