Call Options Or Put Options On Nordstrom (JWN)?

| March 13, 2013 | 0 Comments

Nordstrom (JWN) is a high-end fashion retailer.  They sell overpriced clothing and accessories to people that have too much money to care or wannabes that want to look like they have too much money to care.

As of this writing, JWN trades for $54.40 per share.  The shares are up 18% from the 52-week low of $45.83 but the stock is 6.5% below the 52-week high of $58.15.

Is this an opportunity buy call options on JWN after they raised their dividend and increased their share buyback?  Or should you buy put options on JWN as higher taxes hurt high-end retail?

The bulls make a convincing argument…

Nordstrom is coming off a fantastic quarter.  Net income soared an eye-popping 20% as customers spent big on clothing and makeup during the holiday shopping season.  And same-store sales increased 6.3%.

In fact, business is going so good that President Blake Nordstrom is getting a pay raise for the first time in nine years.  The retailer board of directors is obviously happy with the direction the company is going.

But the JWN’s executives aren’t the only ones getting a raise… shareholders are too.

JWN’s board approved a new stock buyback of $800 million.  That’s in addition to the existing program that still has $344 million outstanding.  And they increased the quarterly dividend by 11% to 30 cents per share.

Management is clearly focused on increasing shareholder value.  And I believe these efforts will drive the stock price higher in the weeks ahead.

But the bears have a compelling case as well… 

Nordstrom had a great quarter.  But the stock is down after they reported earnings.

Why?

Management doesn’t believe they can continue growing at this pace.  As a result, the guidance they issued for full year earnings disappointed investors.

And for good reason…

Nordstrom might be thought of as a high-end retailer.  But their fastest growth isn’t coming from high-end customers.  It’s from their low-priced Nordstrom Rack stores.

And the brutal reality is customers that go to the ‘Rack’ are getting squeezed by higher payroll taxes and slow wage growth.  That means less money to spend at Nordstrom’s low-priced stores.

In short, growth at JWN’s low-priced stores is going to be hard to come by this quarter.  These concerns about growth will likely outweigh share buybacks and dividend increases and send the stock lower in the weeks ahead.

If you think the bulls are right, take a look at buying the JWN July 2013 $57.50 calls for around $1.50.

If you think the bears are right, take a look at buying the JWN July 2013 $50.00 puts for around $1.60.

Good Investing,

Corey Williams

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Category: Options Trading

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets on a daily basis. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

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