Shares of department store Macy’s (M) soared nearly 20 percent last Thursday, as the company announced better-than-expected earnings. One trader sees the potential for shares to move higher.
That’s based on the July $27 calls. With 46 days until expiration, 20,375 contracts traded compared to a prior open interest of 326, for a 63-fold jump in volume on the trade. The buyer of the calls paid $0.66 to get in.
Shares last traded just under $23, so they would need to rise just over $4, or about 18 percent, for the option to move in-the-money.
Overall the stock has returned 2 percent in the past year, although that’s beaten out the S&P 500 over the same timeframe. Shares are still well off of last year’s highs around $38, making this option play a reasonable way to profit from a further rally in the next few weeks.
Action to take: Shares trade at under 5 times forward earnings, and revenue is up nearly 27 percent over the past year. And, at current prices, shares yield about 3.3 percent for investors today, with a dividend that can likely see further increases in time.
For traders, the options are a reasonably priced short-term trade. They can likely deliver mid-double-digit gains in the coming weeks. Traders will likely want to take quick profits, and move on to the next opportunity given how little time is left before the option expires.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.