Note: This post was written by Brian Stutland, President of Stutland Equities and a contributor to CNBC's "Options Action."
Who should you show some love to? JCP or TJX?
Yesterday's unusual options activity focused on two different clothing retailers. JC Penney is a US retailer currently going through a major restructuring to target higher-end shoppers, while TJX is an off-price apparel retailer that owns T.J. Maxx and Marshalls. The sentiment expressed in the options market favors a bearish macro view in which shoppers will favor discount, value-oriented stores over ones selling higher-end luxury goods.
The JCP trade is a bearish put ratio spread. The trader bought 24,900 Nov. 27 puts for $1.68 and sold twice as many Nov. 22 puts for $0.43 in order to finance the trade. The resulting spread makes money if JCP is between 17 and 27 at November expiration, with the maximum profit occurring if JCP closes at 22. If JCP rallies from here, the trade will only lose the premium paid, which is $0.82.
In contrast to the bearishness expressed in the JCP trade, we saw a trader roll a short put position from September to October in TJX. The trader bought 25,218 Sept. 45 puts for $0.37 and sold 25,218 Oct. 45 puts for $1.10. This trade was executed for net credit of $0.73 and results in the trader being short an at-the-money put, which is a bullish-to-neutral position. This trade will profit if TJX remains above $43.90 at October expiration. Selling a put is a strategy traders employ when they would like to get long a stock at a specific price (in this case, for 43.90) and want to generate some income while waiting to buy the stock on a pullback.
Brian Stutland is the President of Stutland Equities and a contributor to CNBC's "Options Action."
Watch Options Actionon CNBC Fridays 5:00pm ET, Saturdays at 6a ET and on Sundays at 6a ET
Questions, comments send them to us at: firstname.lastname@example.org