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March 27, 2013  Wed 9:35 AM CT

M: SEE CHART GET CHAIN FIND STRATEGIES
Macy's continues to pull back down from long-term highs, and option traders are bracing for more downside.

More than 12,000 contracts trade in M already this morning, compared to a total daily average of 3,400. Virtually all of the volume was in the puts. The trade is a complex butterfly spread in the April expiration. A trader bought 2,000 April 41 puts for $0.61 and 4,000 of the April 37s for the $0.08, both going off for their bid prices.

At the same time, they sold 6,000 of the April 39 puts for $0.17 to complete the butterfly spread. This spread is designed to make a maximum profit if M closes at $39 on expiration. Gains will erode below that but they have the 37s as a hedge against too big of a drop. See our Education Section for more on to craft a wide range of strategies with options.

M fell 0.62 percent to $41.73 in morning trading. It hit $42.89 last week, the highest price in three years. Shares were down near support at $36 in mid-January.

Puts outnumber calls by more than 170-to-1 in the retailer so far today.
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