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Options Action

Options traders are betting Macy's is due for a post-earnings rally

Options traders bet on Macy's for a retail rebound

It's no secret how badly 2020 has gone for Macy's. The stock is a whopping 60% below where it started the year, making it one of the worst performers in the retail industry, even among the department stores, which are all facing eye-popping declines. 

However, that isn't stopping options traders from betting that the stock is finally due for a bounce when it reports earnings after the bell on Wednesday. In fact, the options market is more bullish on Macy's than it has been in nearly a year.

"We saw calls comfortably outpace puts today," Optimize Advisors CIO Michael Khouw said Tuesday on "Fast Money." "That's not actually news just for today; we've actually seen that over the past 20 days, where call volume has outpaced put volume by more than 2-to-1. That has led open interest in calls to comfortably exceed that of puts for the first time since October of 2019."

Options activity in Macy's is implying a move of about 9% between Tuesday's close and Thursday expiration, but the day's most active strike ended up being something far more conservative as traders took advantage of relatively cheap options to play for upside without going too far out of the money.

"Where we're seeing a lot of that activity is in the [July 2] weekly 6.5 calls," said Khouw. "The buyers of those were paying just under $0.40."

Right now, those contracts are less than 3% away from their break-even price of around $6.90 on the underlying stock and would become quite profitable if Macy's were to hit that 9% implied move to the upside.

Shares of Macy's were trading about 2% lower in Wednesday's session.