Several stocks and ETFs in the retail sector are seeing interesting options trading this morning.
One investor is using a highly leveraged strategy to go long in Staples (NASDAQ: SPLS). The optionMONSTER Heat Seeker tracking system detected the sale of 2,250 SPLS June 18 Puts for $0.41 and the purchase of equal-sized blocks in the SPLS June 22 Calls for $0.25 and the SPLS June 16 Puts for $0.19. The net cost was just $0.03.
The resulting position will earn huge profits if the office-supply retailer pushes toward or above $22 by expiration. It will lose money below $18, a level SPLS hasn’t seen since early September. The potential red ink on this trade will stop at $16 because they’re using the downside puts as a hedge.
The stock rose 0.36% to $19.71 in morning trading but has lost 14% of its value so far this year. The last earnings report on March 2 missed forecasts, and management issued weak guidance because of the snowy winter and slow computer sales.
SPLS continued lower after that report, but seems to be holding its ground over the last two weeks. Today’s bullish trade indicates that now one investor expects a bounce.
The transaction accounted for almost all the options volume in SPLS today.
(Chart courtesy of tradeMONSTER)
Find more option analysis and trading ideas at Option Trading Strategies.
In another retailer-oriented options trade, a trader is selling calls on the SPDR S&P Retail Fund (NYSE: XRT) as it pushes back up toward resistance.
The XRT rose 0.97% to $49.15 in morning trading — several times more than the percentage gain of the broader markets. It’s near the $50 level that has been resistance over the last six weeks. The fund peaked at $50.61 last month, its highest price ever.
Leading the options volume in the fund this morning are the XRT May 51 Calls, where 5,000 contracts traded for $0.79. Open interest in the strike was just 118 when the session began.
The calls priced below their theoretical price, indicating they were apparently sold. The trade reflects a belief that upside in the fund is probably limited over the next eight weeks when the Mays expire.
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