January $47.50 call options on Ross Stores, a Pleasanton, California-based discounter, and January $65 calls to buy TJX -- the owner of T.J. Maxx, Marshalls, and HomeGoods -- should be bought before next month’s International Council of Shopping Centers report on revenue from stores open at least a year, equity-derivatives strategists Katherine Fogertey and John Marshall said in a report yesterday. Ross fell 0.5 percent to $47.64 at 11:59 a.m in New York. TJX slipped 0.2 percent to $63.
The strategists said retail volatility tends to be high in November, drop in December, and rise in January, and investors have a “good entry point” because average retail implied volatility is down more than 20 percent from last month.
“The options market does not appear positioned for a potential pickup in volatility,” the strategists wrote. Traders are “pricing in continued declines in volatility in January on average, presenting compelling opportunities to position long volatility in retail stocks.”
“Value-conscious” shoppers boosted traffic at discount retailers and surveys show customers have delayed their holiday shopping from last year, which could skew trend data, the Goldman Sachs strategists said, citing Adrianne Shapira, the firm’s retail analyst.
Ross Stores will post better-than-estimated sales as 48 percent of its stores are on the West Coast, so the company could benefit from cool temperatures affecting that area, the report said, while new marketing initiatives at TJX will draw higher-end consumers.
Same-store sales are considered the best measure of a retailer’s results because they exclude the effect of store openings and closings in the past year.
The New York-based strategists also recommended buying January $8 MetroPCS Communications Inc. (PCS) straddles. A straddle involves the purchase of a call and put with the same strike price and expiration, and is a bet that the stock’s volatility will rise.
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