2 Retail Stocks to Buy Puts on Right Now

September has historically been the worst month to own stocks over the past 50 years, as highlighted by Schaeffer's Senior V.P. of Research Todd Salamone in this week's Monday Morning Outlook. And while biotechs and a pair of FAANG stocks are among several names that have tended to buck the seasonal bearish bias, retail stocks Gap Inc (NYSE:GPS) and Ross Stores, Inc. (NASDAQ:ROST) haven't been so resilient. Here's a closer look at how shares of GPS and ROST typically perform in September, and why it might be a good time to buy short-term puts on the retailers.

September is a Tough Trading Month for Gap Stock

According to data from Schaeffer's Quantitative Analyst Chris Prybal, Gap shares have averaged a loss of 5.6% in the last 41 Septembers, and have finished the month higher just 34% of the time. A repeat of history would be more of the same for GPS, which is down nearly 13% since its May 10 year-to-date high near $27, and has been struggling beneath the $24.00-$24.50 region -- home to its 200-day moving average -- for the past three months.

Not surprisingly, options traders have bought Gap puts at a quicker-than-usual clip of late, but those targeting short-term options have been scooping them up at a relative bargain. While GPS' Schaeffer's Volatility Index (SVI) of 30% ranks in the 10th annual percentile, and its 30-day at-the-money implied volatility of 30.9% comes in below 82% of all comparable readings taken in the past year. Summing it up, low volatility expectations are being priced into short-term options.

ROST Stock Has Rallied Into Key Technical Resistance

A mid-August post-earnings surge brought ROST shares up to the key $60 mark, which roughly coincides with the stock's negative 10% year-to-date breakeven mark, 120-day moving average, and its late-June pre-bear gap levels. The security was last seen trading down 1.4% at $58.21, and more losses could be ahead if past is precedent.

Specifically, in the last 32 years, Ross Stores stock has averaged a September loss of 3.5%. What's more, the shares have finished the month negative nearly two-thirds of the time.

A round of downgrades could only exacerbate seasonal headwinds for the shares, with 11 of 17 analysts maintaining a "strong buy" recommendation -- and not a single "sell" rating to be found. Plus, it's a prime time to buy premium on short-term ROST options, based on the security's SVI of 20%, in the 14th annual percentile.