Nordstrom Inc.: A Potential Breakout or Breakdown is Imminent for JWN Options

I love that feeling of accomplishment that comes when one of your trades defies the naysayers to deliver an incredible level of outperformance. I am having another dose of that high today as I look back at impressive gains recorded by my options trade on Nordstrom Inc. (NYSE:JWN). Nordstrom with its market capitalization of $15.21B is a fashion specialty retailer. As of March 18, 2013, the Company operates 242 United States stores located in 31 states, as well as an e-commerce business through nordstrom.com.

I initiated a coverage from which I recommended how the options of Nordstrom should be traded in May 2014.  In that piece, I talked about how the company was soaring to new highs occasioned by the release of its Q1 2014 in which it delivered stellar earnings.

I continued to expatiate on why the new high reached by the stock is a forerunner of better things to come as the company continues to improve its core business. I then gave the stock a $75 price target by recommending that you buy the JWN Jan 2015 70.000 call (JWN150117C00070000) at $4.65.

6 Months Later: Update on JWN Options

As at 11:18AM EST today, shares of Nordstrom have touched $80.08, cents away from its 52-Week high of $80.54.  In essence, the shares of Nordstrom have gained 13.44% in the last six months. The options contract gained 118.27% in the last 6 months from an asking price of $4.65 to the current $10.15 asking price. If you still have that Jan 2015 70 call in your portfolio, you may want to consider running with your gains as the contract is set to close on January 17.

New Coverage on Nordstrom

Without much ado, Nordstrom has had an impressive 2014 in which the stock recorded more than 30% in gains beyond the 8.73% gains recorded as the industry average. 2015 is also set to be another profitable year for Nordstrom as the company starts executing its plan for international expansion by opening full-line stores in Canada.

In addition, the company is recording impressive growth in its Nordstrom Rack and Nordstromrack.com segments as corroborated in the 7.3% increase in sales in the combined first three quarters of 2014 compared a 4.2% increase from the same period in 2013.

Value investors can look forward to another great year with Nordstrom as the company lays the foundation to deliver impressive earnings and dividends. However, options traders should not be quick to jump on the bullish bandwagon on Nordstrom because the stock appears to be overvalued at the current price.

For one, Nordstrom’s international expansion plan is no longer news neither is the possibility that the company will record an increase in sales and revenue; hence, it is safe to assume that the inherent value of both pieces of news are already priced into Nordstrom’s current $80 share price.

JWN Chart

The chart above provides additional insight into Nordstrom’s lofty valuation. Nordstrom is trading at 21.11 times trailing earnings and 21.22 times forward earnings. Hence, the shares of Nordstrom are currently pricey in relation to historic norms.

How to Trade JWN Options

In view of Nordstrom’s prospects in 2015 and the apparent overvaluation of its stock, I strongly believe that shares of Nordstrom will either breakout above the $80 price target towards $85 or break below $80 towards $75. The company’s Q4 2014 earnings slated for February 19 will be a major catalyst that will determine where the stocks are headed.

Hence, I recommend buying the JWN Apr 2015 80.000 call (JWN150417C00080000) at an asking price of $3.65 and the JWN Apr 2015 80.000 put (JWN150417P00080000) at an asking price of $3.85 and then make ace the losing side of the trade when Nordstrom deliver Q4 earnings next month.

 

 

— Daily Option Alerts

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