Shares of department stores are tumbling on the heels of soft earnings from Macy's, but one trader is making a big bet that rival Nordstrom will fare better when it reports after the bell Thursday.
Major retailers Macy's, JCPenney and Nordstrom are all struggling this year — shares are down more than 30, 36, and 4 percent respectively in 2017. Macy's stock plunged more than 15 percent on Thursday after reporting weaker than expected earnings before the bell.
Nordstrom reports earnings after the bell on Thursday, and the options market saw more than 8 times the daily average options volume, according to Mike Khouw of Optimize Advisors.
While the overall sentiment in the options market was bearish on the department store, there was a buyer of 11,500 May 50-calls for an average of 70 cents per options contract. That means that the trader is making a bet that stock will close above $50.70 per share by May expiration. "Looks like this trader is making a contrary bet. At this point, any kind of positive news could cause a big snapback," Khouw said.
The options market is implying a 7.5 percent move for Nordstrom in either direction, and Nordstrom shares fell more than 7.5 percent during Thursday's trading session before the earnings release after the close. "What that's telling you is that the options market is reflecting what's happening," Khouw explained. "I think it would be surprising if more damage were to happen at this point."
