Macy’s has had an interesting 24+hours. Following the release of their Q4 earnings report the stock seems to be a a bit confused.Initially it opened unchanged but quickly came under pressure yesterday, getting as low as 61.10. But since then the stock found the buyers it needed, and is now back to where it was going into the report:
We placed a defined risk bullish play into all this. Here is that structure:
TRADE: Macy’s ($63.25) Buy to Open March 65/67.50 call spread for 60 cents
-Buy 1 March 65 call for .90
-Sell 1 March 67.50 call at .30
With the stock now slightly higher than our entry this structure is still a slight loser mark to market at around .45 now. The reason for that is the collapse of implied vol after the event:
This structure is still out of the money and so we’re going to need a breakout above the 50 day moving average of about 64.32 to really get it cranking:
Right now the structure is about 30 deltas, so at that 50 day it’ll be worth about what we paid. Above that and we’re in business but we’ll need to watch that level closely as a failure there would sorta confirm a downtrend since the highs in January.
We’d likely not adjust in the meantime or at that level but if we did it’s possible that turning the call spread into a call fly could take some risk off the table. But as it is now selling the 67.5/70 call spread to do that is just too dollar cheap for the effort. That’s be something we’d maybe do with the stock up near $65 though.
So we’ll hang on for now, the rebound in the shares today is positive so far. And we’ll be keeping an eye on that 50 day moving average.
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New Trade – $M Parade
A couple weeks ago I took a look at Macy’s after strong sales results for Kohls, another U.S. retail that should get the benefit from no strong dollar exposure and a consumer that benefits from lower gas at the pump. The stock broke out to new all time highs, and has yet to look back:
And today, Nordstrom (JWN) broke out to new all time highs after reversing early losses on a guide lower on last night’s call:
JWN, like KSS has 100% revenue exposure to the U.S., as does Macy’s, and Macy’s has under-performed so far in 2015 down 3.5% on the year and down 7.5% from the all time high on Jan 7th. I would also add that there has been plenty of news in the stock over the last couple months, as they have reported Q4 comps, reiterated 2014 guidance, made an acquisition of a beauty brand and announced some store closings. It is my view that the stock is going to trade on fiscal 2016 guidance given next week, and if JWN’s price action post its results/outlook is to be used as a guide, then the stock could be a scoop at these levels into the print.
The stock trades at 13x expected fiscal year earnings growth of 11% vs JWN at 20x expected fiscal 2016 growth of 8%.
TRADE: Macy’s ($63.25) Buy to Open March 65/67.50 call spread for 60 cents
-Buy 1 March 65 call for .90
-Sell 1 March 67.50 call at .30
Break-Even on March expiration:
Profits: between 65.60 and 67.50 make up to 1.90, max gain of 1.90 above 67.50 up about 7%
Losses: between 65.60 and 65 lose up to .60, max loss of .60 below 65, or 1% of the underlying stock price.
Rationale: This trade offers a fairly attractive risk reward risking 1% into an event with the max gain at the prior highs.
From a technical standpoint, the stock has pulled back to near term support level and targeting a move on better than expected guidance back to the prior high looks like a reasonable target:
