Options Activity Alert: Retail Options in Focus

DSW – DSW Inc. – Shares in the footwear retailer are up 3.05% in early-afternoon trade to stand at $43.19, and options activity in the April expiry calls and puts suggests the stock may continue to march higher during the next four months. One strategist appears to have sold put options on DSW to offset the cost of buying a bull call spread, a position that yields maximum possible profits in the event of a more than 15.0% rally in the shares. The investor likely sold roughly 400 puts at the April $38 strike in order to purchase a roughly 400-lot April $43/$50 call spread, done at an average net credit of $0.40 per contract. The trader walks away with the net credit in hand as long as DSW’s shares exceed $38.00 at expiration day in April. Additional gains accumulate on the upside above the breakeven price of $43.00, with maximum potential profits of $7.40 per contract – including the $0.40 net credit – available on the trade if the stock soars 15.8% to top $50.00 at expiration in April. Shares in DSW last traded above $50.00 in mid-November 2011.

BKS – Barnes & Noble, Inc. – Bookseller Barnes & Noble forecast a wider-than-expected fiscal 2012 loss in a statement today, pushing shares in the name down as much as 31.0% to an intraday low of $9.35, and driving up demand for BKS options. Put options in the front month are most active, but it appears much of the volume was generated by sellers. Investors selling puts on the name receive premium in exchange for bearing the risk that the bookseller’s shares continue to hemorrhage in the next couple of weeks to January expiration. The Jan. $7.5, $9.0 and $10 strike put options attracted the heaviest volume. One block of 2,500 puts changed hands at the Jan $10 strike at a premium of $1.05 each, and were likely sold by an investor that expects shares in the name to exceed that level through expiration. The full amount of premium is safe in the investor’s wallet as long as the put options expire worthless, and also serves as a limited buffer against losses the trader may face on the downside should shares continue to decline. Losses may be incurred on the position if the stock breaches the lower breakeven share price of $8.95 at expiration. Meanwhile, lighter-volume trading in the February expiry calls and puts points to mixed sentiment on the stock’s likely trajectory over the next six week period. It looks like investors purchased Feb. $8.0 and $10 puts and snapped up call options at the Feb. $10 and $11 strikes. Shares are currently off their lows, down 21.0% at $10.70 as of 1:10 PM in New York. Call buyers are prepared to potentially profit from a rebound in the name, while put buyers stand to benefit from further weakness in the stock.

FOSL – Fossil, Inc. – The maker of watches and other accessories popped up on our ‘hot by options volume’ market scanner on Thursday due to heavy put action in the front month. Shares in Fossil, Inc. rose 3.2% to $80.55 this afternoon, rallying along with a number of other retailers following the release of December same-store sales data, as well as a ‘buy’ rating initiated at KeyBanc with a share price target of $105.00 this week. Put options are far more active than calls on the stock today, with the put-to-call ratio hovering just under 10-to-1. However, it looks like much of the volume was sold in the first 30 minutes of the session. Investors exchanged more than 6,500 puts at the Jan. $75 strike against open interest of 730 contracts, which indicates the trades were initiated to open. The largest single block of puts, some 3,150 contracts, appear to have been sold for a premium of $1.45 each by one strategist who pockets the full amount of premium at expiration in the event that Fossil’s shares exceed $75.00. Light call buying up at the Jan. $80 strike, where more than 400 now in-the-money contracts changed hands, suggests some traders may anticipate continued near-term appreciation in the price of the underlying.

About Caitlin Duffy 373 Articles

Affiliation: Interactive Brokers

Caitlin Duffy joined Interactive Brokers in 2009. In her role as Equity Options Analyst, Caitlin provides daily market commentary; highlighting various options trades, trading patterns and strategies of interest. Through Interactive Broker's webinar program, Ms. Duffy presents a number of educational, options-related events describing the theoretical pricing of options, the option Greeks as well as options strategies.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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