By Jud Pyle, CFA, chief investment strategist for the Options News Network
Bearish investors boosted put volume in
during the first half hour of trading today without significant news from the fashion specialty retailer.
Looking at the Oct. 14-19 put spread, one investor bought the spread 5,000 times at $2.20 per spread with the stock trading at $18.50. The Oct. 14 puts, which are trading down two cents so far today, are home to current open interest of 441, while the near-the-money Oct. 19 puts, which have dropped eight cents, are home to current open interest of 2,881.
Normal daily options volume in JWN is approximately 10,000 contracts across all strikes vs. the whopping 45,000 total contracts that have traded in the first two hours of trading today. The bulk of that volume, or about 40,000 contracts, crossed the tape in the Oct. 14 puts and Oct. 19 puts (and was split fairly equally between the two strikes).
Mixed jobless claims and consumer sentiment reports have sent retail stocks downhill in the last few months, and so far today, the S&P Retail Index, or RLX, was off about one point to 316.8. JWN shares have rallied steadily since reaching a 52-week low of $6.61 last November. Currently, the stock is up 14 cents to $19.13 a share. This nearly 200% gain in eight months could have some investors looking for profit-taking opportunities.
Heavy put-spread buying such as this does not mean investors should run out and sell their JWN holdings. At least one investor is participating in the options selloff we're seeing on a bet that JWN stock could expire lower than $16.80 (the higher strike price minus the premium paid) come October expiration.
Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."