Trader shops for drop in Nordstrom


Nordstrom hit a new four-year high today, and one investor is looking for a modest pullback.

Option volume in the retailers already exceeds 12,500 contracts, more than 6 times the daily average. Most of this action is in a three-way spread in April. A trader bought 2,500 of the 52.50 puts for $1.92, sold 5,000 of the 48 puts for $0.64 and 2,500 of the 55 calls for $1.14. Open interest began the session below 1,000 in all three strikes, so these were new opening positions.

The trader received a credit of $0.50, which he or she will keep if JWN stays between $52.50 and $55. The gains will pile up quickly if the stock breaks below that range, with the maximum profit at $48. The trader will be forced to buy shares under that price and will be short the stock above $55.

The strategy combines elements of a ratio spread and collar trade and could have been done against a long position in the underlying equity. (See our Education section)

JWN is up 1.2 percent to $53.26 in afternoon trading. Earlier in the session it touched $53.69, its highest level since 2007. Shares are almost 50 percent above their 52-week low in August.

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