Unusual Put Options Activity in Canada Goose and Macy's Show Negative Retail Outlook

The Barchart Unusual Stock Options Activity Report today shows there is large unusual put options activity on two retail stocks at strike prices near the market price expiring several months out. This means some investors have a negative outlook on these stocks, Canada Goose (GOOS) and Macy's (M).

For example, the number of puts traded in GOOS stock for the period ending April 21, 2023, at the $22 strike price, just 9.1% below the spot price of $24.22, is over 65 times the existing open interest in these puts. That means that the 10,203 put contracts that were bought were over 65 times the existing 153 contracts that were already outstanding.

The same is true for Macy's put contract volume for the period ending May 19, 2023. Here the $19.00 strike price puts, which are 16.4% below the spot price of $22.73, had about 58 times the existing open interest in those contracts.

This can be seen in the Barchart Unusual Stock Options Activity report, which I have copied below. As in other articles that I have written about unusual options activity, this may not be there by the time this is published, since there are always newer levels of options activity. 

But I have highlighted these two trades as they seem to imply negative investor sentiment in the retail sector, or at least for these stocks. Otherwise, how would these two large put trades be initiated if they weren't from one or two large investors taking a long put position?

What These Long Put Positions Imply

Canada Goose makes jackets, rainwear and other apparel and has its own stores. Macy's is a large diversified retail company. These two large bets seem to imply that the economy will slow dramatically and these stocks are likely to fall at least in terms of the Q1 results. That is because by the time these companies report their Q1 earnings the put price expiration will be approaching or have passed.

Investors in the large put contracts seem to think the stock will be down significantly. For example, the midpoint price of GOOS put trade was $1.53 per put contract. But since the strike price is $22.00 per share, that means the breakeven price before the long-put investor can start to make money is below $20.47 (i.e., $22-$1.53). This means the stock has to fall $3.61 from $24.08, or 15%. 

However, the put contract does not expire for 79 days or almost 87% of a full quarter from now. That could be plenty of time, especially since the Fed is still expected to raise interest rates at least 2 times over that period. That could continue to slow consumer spending, which it seems is what the Fed wants to see. In other words, the investor is betting the stock will fall greater than 5% per month over the next three months. That seems highly likely and they are willing to pay for the 15% gap before their investment even begins to make a profit.

Keep in mind, however, that this is based on the closing price by April 21, 2023. The puts could easily rise from $1.53 over this period given the fact that puts always have extrinsic value - i.e., a higher premium over the intrinsic value as of the close of the contract. So they may not have to wait the full period to make a profit.

The same is true for Macy's. The midprice of 73 cents plus the difference between the spot price and the strike price is $3.73 (i.e., $22.72-$19.00). This implies that by the expiration close, the stock has to be down $4.46 or $18.27 (i.e., $22.73-$4.46) to reach breakeven. That means the stock has to drop almost 20% over the next 107 days (i.e., 19.6%).

But, again, the reality is that extrinsic value could rise as the stock falls and the investor could see his investment at 73 cents per put contract rise in value even if the stock does not drop 20% by May 19 when the contract expires.

In other words, these large investors feel strongly that these two retail stocks are more likely to drop over the next 3 months than rise. Investors may want to be careful if they are taking the opposite position since there will be strong forces pushing these stocks lower.

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