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Battered U.S. retailers’ shares draw bottom-pickers in option market -Breaking


© Reuters. FILEPHOTO: This is a shopping cart seen in Target’s Brooklyn store, New York. November 14, 2017. REUTERS/Brendan McDermid

Saqib Iqbal Ahmad

NEW YORK (Reuters) – Some options players are betting that this year’s selloff in the shares of retailers may be overdone, at least for the near term.

On Tuesday, retailers’ stock prices took another beating after a tough week. Target (NYSE:) Reduced its quarterly profit margin forecast.

More broadly, the Retailing index is down about 25% for the year, outpacing the 14% decline in the benchmark S&P 500 as consumers shift their spending amid soaring inflation.

Picking a bottom has proven difficult in almost any part of the equity markets this year. However, options trades show that investors might be trying to find one with the recent decline in retail stocks.

One example is the $1.8 million Target put sale on July 145 on May 31, which was a trader betting on retailers’ relief. Put sellers stand to benefit if stock falls or rebound.

Macy’s (NYSE) attracted a buyer for 10,000 options, worth approximately $1 million. This puts the stock on a fast 20% rise by August’s middle.

Chris Murphy of Susquehanna is co-head for derivative strategy. Murphy said investors were trying to pick a bottom after the major sell-off in May. Additionally, he noted similar trades in Target (NYSE:), Gap (NYSE;), and Walmart.

Target shares have fallen 33% in the past year while Walmart has dropped 16% and Gap has fallen 40%.

Target, Walmart and Abercrombie & Fitch are attractive put-selling names for investors who expect the stocks’ recent underperformance to abate, Goldman Sachs (NYSE:) said in a note on Monday.

Analysts think that there are a few retail companies that have seen their value increase after falling.

Finom Group president Seth Golden stated that issues like supply pressures and consumer spending patterns will improve over the next six month. Golden purchased TJX Companies (NYSE 🙂 on Tuesday as stock dropped below $60.

He said, “Valuations are compressed enough for us to start buying these names.”