Volatility for Retailers Isn't Over, Options Indicate
August 20 2019 - 12:54PM
Dow Jones News
By Gunjan Banerji
It has been a wild earnings season for retailers, and options
traders are bracing for bigger stock swings for some shops.
Shares of big retailers such as Home Depot, Inc., Kohl's Corp.
and TJX Companies Inc. recorded large moves in trading early
Tuesday and were some of the biggest winners and losers in the
S&P 500.
Home Depot climbed 4.3% after the home-improvement retailer
reported second-quarter earnings, putting it on pace for its
largest single-day jump this year. Meanwhile, Kohl's lost 4.4% and
TJX shed 3.2% after they released quarterly results, making them
two of the biggest losers in the S&P 500 on Tuesday.
Some investors expect this type of volatility in the sector to
continue, forecasting big moves up or down for retail companies
reporting earnings in coming days. Investors have had to parse the
impact of escalating tariffs with China as well as evolving
consumer tastes in recent reports.
Home Depot warned Tuesday that tariffs could weigh on growth but
its quarterly profit still topped analyst expectations.
Options traders are forecasting a 9.9% move in Nordstrom Inc.
shares after the retailer reports the latest financials Wednesday,
above the average 6.7% over the past eight earnings releases,
according to data provider Trade Alert. The stock has already been
volatile over the past month, falling roughly 23% in August.
That projection is based on a trade known as a straddle, which
measures the size of the swing in either direction rather than the
direction of the move itself. The trade involves buying both
bullish and bearish options contracts that allow investors to buy
or sell stock at a specific price.
Similarly, options traders are also betting on up to a 13% move
in BJ's Wholesale Club Holdings, Inc. shares after the company
reports results on Thursday. Historically, the stock has swung an
average of 4.7%, Trade Alert data showed. Traders are wagering on
bigger moves than historically recorded for Ross Stores, Inc., too,
according to Trade Alert.
The wagers come as retailers are undergoing a volatile earnings
season that has separated some strong winners from losers. The
latest earnings reports have been punishing to companies that
investors weren't pleased with -- such as Tapestry, Inc. Meanwhile,
investors have cheered companies like Walmart Inc. after their
earnings, driving their share prices higher.
It looks like these divergences could continue.
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com
(END) Dow Jones Newswires
August 20, 2019 12:39 ET (16:39 GMT)
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