Retail stock, wholesale options trading

  • Heavy options volume in ROST with earnings due next week
  • Stock down more than 30% since last May
  • OTM puts most active as shares approach March lows

With the retail portion of earnings season getting underway next week, it shouldn’t be surprising to see these stocks experience an uptick in options activity.

One of them, Ross Stores (ROST), appeared on yesterday’s LiveAction scans for high options volume, with put volume running nearly eight times average around mid-morning:

Chart 1: LiveAction scan: Unusual put volume, 5/11/22. Unusual options activity. Put volume nearly 8 times avg.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

ROST’s options chain showed the majority of the 5,319 puts that had traded were in the $90 and $85 puts expiring on May 27. But with volume of nearly 900, the $80 puts weren’t far behind (1,400 $80 puts expiring on May 20 traded later in the morning):

Chart 2: Ross Stores (ROST) May 27 put options. Ross Stores (ROST) options chain. Large trades in ATM and OTM options.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

Some important context: The May 27 options represented the first expiration after ROST’s scheduled earnings release on May 20. Also, around midday, ROST’s range for the day was $88.27–$90.49, so all the puts involved were either out-of-the-money (OTM) or essentially at-the-money (ATM). Finally, the majority of this volume represented traders getting into the market, since yesterday’s volume was greater than the existing open interest in each contract.

Ramped-up put trading is often reflexively viewed as a potentially bearish/defensive development, especially when a stock is about to release earnings. In this case, ROST’s price action may have added to that impression. Since hitting an all-time high above $134 last May, ROST traded as low as $84.44 last month before bouncing. As of yesterday, though, its latest downturn had dropped shares fairly close to their March lows:

Chart 3: Ross Stores (ROST), 5/5/21–5/11/22. Ross Stores (ROST) price chart. Approaching 19-month lows.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

But experienced traders know first impressions in the market are often misleading, especially in options. After all, large put volume could mean some traders are expecting a down move, but that group could include bullish long-term ROST investors temporarily hedging against near-term earnings volatility. (As of Wednesday, the Street’s average 12-month target for ROST was $119.13; Morgan Stanley had an Overweight rating on the stock.1)

Then, consider the reality that there had to be traders taking the other side of yesterday’s trades, for whom selling puts could reflect a bullish outlook on the stock. Finally, there’s the possibility that some of yesterday’s trades were combined in spread positions intended to profit as much from changes in volatility as price direction.

As compelling as unusual trade activity may appear at first glance, traders would be wise to avoid reflexively bearish reactions when they see high put volume or “bullish” ones when they see high call volume. Markets are rarely that transparent. Most of the time, such information represents just one facet of a complex, constantly evolving picture.

Market Mover Update: After a sharp two-day sell-off, crude oil prices jumped more than 6% intraday on Wednesday against the backdrop of the European Union’s efforts to embargo Russian oil (see “Taking stock of oil”).2

Today’s numbers include (all times ET): Weekly Jobless Claims (8:30 a.m.), Producer Price Index, PPI (8:30 a.m.), EIA Natural Gas Report (10:30 a.m.).

Today’s earnings include: Tapestry (TPR), BRC (BRCC), Veru (VERU), Squarespace (SQSP), Toast (TOST), Duolingo (DUOL).


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1 Ross Stores Stock Forecast & Price Targets. 5/11/22.
2 Oil jumps as Russia gas flow to Europe falls, EU Russian oil ban looms. 5/11/22.

Important note regarding economic sanctions. This event may involve the discussion of country/ies which are generally the subject of selective sanctions programs administered or enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the European Union and/or by other countries or multi-national bodies. The content of this presentation is for informational purposes and does not represent Morgan Stanley’s view as to whether or not any of the Persons, instruments or investments discussed are or may become subject to sanctions. Any references in this presentation to entities or instruments that may be covered by such sanctions should not be read as recommending or advising on any investment activities involving such entities or instruments. You are solely responsible for ensuring that your investment activities in relation to any sanctioned country/ies are carried out in compliance with applicable sanctions.

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