Volatility for Retailers Isn't Over, Options Indicate

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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