Options traders discounting retail rally?

  • WSM down Tuesday, put volume heavy
  • Last week’s stock surge a case of “mistaken identity”
  • Possible large bear spread rolled forward

With all the major US stock indexes down more than 1% on Tuesday, there was nothing unusual about any particular stock trading in the red.

Case in point, retailer Williams-Sonoma (WSM), which was down more than 2% around noon ET. But one thing that made WSM unique was the fact that it was just a little more than a week removed from a big (11.6%) rally on September 25, which broke prices out of a one-month trading range:

Chart 1: Williams-Sonoma (WSM), 5/1/23-10/3/23. Williams-Sonoma (WSM) price chart. Reversing a breakout.

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

That price surge, which pushed the stock to $156.28 (more than 10% above the Street’s average price target of $141.411) had an unusual back story. It occurred just as a new crypto meme token called Wall Street Memes was launching—using the same ticker symbol as Williams-Sonoma, WSM. It’s entirely possible that the reports of crypto traders buying Williams-Sonoma shares in a case of mistaken identity were, in fact, accurate.2

How much of the September 25 rally was attributable to that confusion remains to be seen. Yesterday’s sell-off unfolded as WSM landed on the LiveAction scan for unusual put volume, which was running approximately six times average. Also, the most notable trades looked like they could be related. The October monthly $139 put had volume of 802 contracts and the $144 put had volume of 800:

Chart 2: WSM October puts, 10/3/23. Williams-Sonoma (WSM) options chain. Possible bear put spread.

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

If those positions were connected—which is impossible to know with certainty—they could have represented a bear put spread: long the $144 put and short the $139 put, a limited-risk, limited-reward trade with the potential to profit if the stock declined, and reaching its maximum gain (at expiration) if the stock closed at the short option’s strike price.

Because the open interest (OI) in both of these options was greater than the volume, it’s possible Tuesday’s trades represented liquidations, not new positions. That may have been on the mind of traders who took the time to scroll through the rest of WSM’s options chain, which revealed another pair of 800-contract trades in the $131 and $136 puts expiring on November 3:

Chart 3: WSM November 3 puts, 10/3/23. Williams-Sonoma (WSM) options chain. Rolling spread forward (and down)?

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

In this case, though, both contracts had OI of zero, which suggests these trades, unlike the ones in the October options, represented new positions. That means a large trader (or traders) may have been “rolling” the October $144-$139 put spread “forward and down” to a November 3 $136-$131 put spread.

And because the new spread could only be profitable (at expiration) if the stock was trading below the upper strike price ($136), it would suggest the trader(s) may have lowered their expectations for the stock over the next few weeks.

Market Mover Update: Bumble (BMBL) fell to a second-straight all-time low on Tuesday, with put options volume more than 18 times average (see “Options traders jump in at new lows”). Alnylam Pharmaceuticals (ALNY) closed lower after testing its former breakdown level for a second day (see “Biotech tests support”). After falling to a nearly three-week intraday low of $87.76 yesterday, November WTI crude oil futures (CLX3) snapped a three-day sell-off, closing above $89.

Today’s numbers include (all times ET): Mortgage applications (7 a.m.), ADP employment (8:15 a.m.), PMI Composite (9:45 a.m.), Factory Orders (10 a.m.), ISM Services Index (10 a.m.), EIA Petroleum Status Report (10:30 a.m.).

Today’s earnings include: Acuity Brands (AYI), Helen Of Troy (HELE), RPM (RPM).


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1 TipRanks. Williams-Sonoma (WSM) Stock Forecast & Price Target. 10/3/23.
2 Zacks.com. Markets Break Losing Streak; Bond Yields Rise, Too. 9/25/23.

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