Macy’s Incorporated (NYSE: M) released earnings earlier Thursday, beating on EPS (+291%) and revenue (+4.63%). These strong numbers ignited trading activity, with over 79 million shares traded on the day, a 400%+ increase from its 10-day average (18 million shares).
Anytime a stock trades several multiples above its 10-day average, it suggests there is heavy participation from both the retail and institutional traders, which often leads to strong volatility (bullish or bearish).
But of particular note, option traders have been very aggressive in trading the stock with over 334,000 options traded Thursday (image below).
Looking at this data, option traders are clearly bullish as they have posted over 245,000 calls and 89,000 puts. This translates to 73 out of every 100 options being calls, hence the option flows are heavily bullish.
Why It Matters: Anytime you have option traders leaning so heavily on the call side, it generally represents a strong bullish view on the stock.
It is also important to note that prior to Thursday, there were approximately 428,000 calls and 370,000 puts for a total of 798,000 options. Hence today’s 334,000 options represent a 41% increase in the total options within one day, which is substantial.
What’s Next: Prior to Thursday, about 48% of the 798,000 options were short dated, which means approximately 383,000 options are expiring Friday. However, option traders have added roughly 130,000 more short dated options.
Looking forward, the next largest expiries by volume are the Nov. 26 and Dec. 17 expiries, both of which are call heavy (Dec. 17 option chain below).
This suggests option traders are shifting their bullish views one week and one month out with the largest strikes by volume and open interest lie between the $32 and $42 strikes.
While the price action may see a pullback due to the heavy amount of options expiring Friday, it appears option traders are targeting the $42 strike and feel the $32 strike will offer support on a pullback.
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