While this Friday's jobs data is likely to lead the market in the days ahead, fourth quarter earnings reports begin to roll out and a number of retailers are releasing same-store sales results later this week as well. The profit reports, which include numbers from Alcoa (AA) and American Express (AXP) on Thursday, could offer an early preview of what to expect when the floodgates open on earnings next week. Meanwhile, the same store sales numbers will be scrutinized for signs of how the retailers fared during the holiday shopping season. In the options market, we noticed some positioning in three names ahead of the upcoming catalysts. Two are retailers and one is an earnings play.
Micron Technology (MU) is among a handful of companies reporting this week before the floodgates open on fourth quarter earnings beginning Jan 13. The stock is down 1.1% to $20.75 Monday morning and has dropped 10.3% in the month leading up to the report. However, in the option market, one player bought a hefty 11,516-lot of Feb 23 calls on the memory chipmaker for $1.07 per contract on Friday. Total volume at that strike was 27,210 contracts and the flow created 18,589 of new open interest. February 22 calls were actively traded as well. While MU is down from the multi-year highs a month ago, it has tripled in value over the past 12 months. The heavy trading in Feb upside calls on the stock Friday seemed to be expressing confidence that the stock can continue to rally through this week's earnings.
Gap Stores (GPS) is flat at $39.33 today after several months of seesaw action. Shares of the retailer are basically at the same levels today as they were seven months ago. However, sentiment in the options on the stock was bullish Friday, when a sweep of 2,657 Weekly (1/10) 39 calls traded on the retailer for $0.61 when the market is $0.50-$0.61. 5,523 contracts changed hands Friday and the activity created 4,802 contracts of new open interest at that strike. Another 2,800 contracts have traded Monday morning. The interest in the contract, which expires at the end of this week, might be a play on monthly same store sales results from a handful of retailers next week, including GPS after the close on Thursday.
Lastly, heavy trading continues in JC Penney (JCP). The stock was obviously one of the big losers in 2013 and lost 53.5% over those twelve months. In the options, one put buyer paid $740,000 for protection in JCP options Thursday. To be specific, the investor paid $0.37 for a total of 20,000 3-strike puts expiring in January 2015. The strike of the contract is 66.6% below the spot price. On Friday, one of the top options trades in the retailer was a 3500-lot of Weekly (1/10) 8.5 puts for $0.34 on CBOE when the market was $0.28-$0.30 cents. JCP is expected to provide an update on sales comps this week, according to Briefing, and the bearish flow seems to be reflecting concerns about the potential for negative news on the announcement.
OptionsProfits can be followed on Twitter at twitter.com/OptionsProfits
Henry can be followed on Twitter at twitter.com/OptionAlert
EXCLUSIVE OFFER: Jim Cramer's Protégé, Dave Peltier, only buys Stocks Under $10 that he thinks could potentially double. See what he's trading today with a 14-day FREE pass.