Nordstrom Returns – JWN

by riskreversal January 5, 2017 3:59 pm • Trade Ideas

Retail stocks are down big today. Macy’s (M) and Kohl’s (KSS) are driving the sell-off, down 14 and 19% respectively. On Wednesday, both reported lower-than-expected holiday sales and cut their full-year profit forecasts. Macy’s announced 10,000 job cuts. Meanwhile, Amazon (AMZN) is up 3%, and reported their best ever holiday season. We all know what’s going on here.

On day’s like today it’s interesting to take note of some large options trades in the sector. Nordstrom (JWN) is down about 7.5% on today’s retail carnage and seems to have broken down from a precarious level of support:

There was an interesting large trade in JWN options today. Just before noon, when the stock was 44.55 a trader sold 10,000 of the Feb 52.5 calls and bought the April 52.5/57.5 call spread 10,000 times. That looks like a roll from an existing call position in Feb to a call spread in April but as you can see the April 57.5 calls were sold to close as well:

The entire roll cost a 0.38. The trader is essentially rolling down April 57.5 into a April 52.5 calls. They’ve at least bought some time, and now have until April rather than February for the stock to make a move higher above 52.50.

But by keeping the existing strike of 52.5 it still looks pretty far away for a breakeven, even with the extra 2 months. And they’ve basically thrown in the towel on that move happening anytime soon. So this could be a case of throwing good money after bad. But after a move like this in retail stocks there aren’t many easy answers to re-position.