Options traders have been bullish on retail stocks TGT and AEO
Next week will be huge for the retail sector, with some of the most prominent companies scheduled to report
earnings. Meanwhile, the broader stock market tends to underperform during
Presidents Day week, but two retail stocks landed on our list of names that tend to outperform around the holiday:
Target Corporation (NYSE:TGT) and
American Eagle Outfitters (NYSE:AEO). We'll take a closer look at the data to see how options traders are positioned on shares of TGT and AEO.
As is the case for most of the retail sector, TGT could use a boost on the charts. The stock has been trending lower since its all-time high of $85.81 in mid-2015, with the shares last seen 0.6% lower at $65.37. But Target has moved higher during eight of the past 10 Presidents Day weeks, averaging a gain of 1.5%.
Meanwhile,
options data for TGT is sending mixed messages. Numbers from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 10-day call/put volume ratio of 1.45, which ranks in the bullish 69th annual percentile. However, our Schaeffer's put/call open interest (SOIR) for TGT -- which measures open interest among options expiring within three months -- is 1.32, just 1 percentage point from an annual put-skewed peak.
The cause of this short-term put bias is huge levels of open interest at Target Corporation's March 60 and 62.50 strikes. While data from the major options exchanges confirms some buy-to-open activity has taken place, many traders have also been
selling to open these options -- especially at the 62.50 put. So, while near-term puts have been popular, not all the positions are bearish -- specifically, the sellers are using them to bet on a technical floor for TGT shares. And by focusing on the March series, traders are putting the company's fourth-quarter earnings release in play, with the event scheduled the morning of Tuesday, Feb. 28.
AEO options traders have been taking a much more straightforward approach, as call buying has been unusually popular in recent weeks. The stock's 10-day call/put volume ratio at the ISE, CBOE, and PHLX now stands at 2.21, compared to a reading of just 0.18 a month ago. Near-term calls are especially in focus, with AEO sporting a SOIR of 0.40, which sits below all other readings from the past year.
Interestingly, most of this call activity has taken place in the February series, which'll expire at the end of this week -- ahead of the company's earnings release, scheduled the morning of Wednesday, March 1. For instance, peak call open interest sits at the February 15.50 call, with the 20 and 22 strikes close behind. It's likely buyers of the 15.50 call are "vanilla" bulls betting on an upside move, while those targeting the deep out-of-the-money strikes may be short sellers hedging, since almost 19% of the stock's float is sold short.
Unfortunately for American Eagle Outfitters bulls, the stock has seen strong resistance at the $15.67 mark lately, an area that represents a 61.8% Fibonacci retracement of its 2016 low and high. However, with history on its side, AEO could break out next week. The shares have moved higher during eight of the past 10 Presidents Day weeks, averaging a 1.8% gain. Today, AEO stock is down 1.2% at $15.30.