Options Trading News

April 23, 2014  Wed 12:20 PM CT

For a second straight day, the bulls are shopping at Abercrombie & Fitch.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 5,100 May 41 calls for $0.41 and the sale of an equal number of May 42 calls for $0.21. That translates into a cost of $0.20.

The trade was probably a bullish vertical spread, with the potential to earn a 400 percent profit if the apparel retailer closes at $42 or higher on expiration. But volume was below open interest in the 41s, so it's also possible that the investor rolled a covered call to the higher strike. That would also be bullish because it would reflect a belief the stock is going to $42 instead of $41. (See our Education section)

ANF is up 0.65 percent to $37.32 in afternoon trading but is down 19 percent in the last year. It's struggled along with other teen retailers in 2013 but has been trying to recover since December. Shares gapped higher following positive earnings announcements on Jan. 9 and Feb. 26. The next quarterly report hasn't been scheduled yet, but last year's calendar suggests it will occur in late May.

Tuesday saw similar activity, with a May 37/41 bullish call spread appearing about halfway through the afternoon session. The trader paid roughly $1.50 for that bet.

Vertical spreads make sense in the stock because it's getting squeezed between support at its 100-day moving average and resistance at its 200-day moving average. This way, traders can play for a breakout at low cost.

Total option volume is more than twice average amounts today, according to the Heat Seeker. Calls outnumber puts almost 4 to 1.
Share this article with your friends


Premium Services

Upcoming Webinar:

How to Defend Your Portfolio and Profit in a Market Selloff


Jon Najarian and Sandy Chaikin of Chaikin Analytics demonstrate how to play defense when the market is selling off. And, how to turn misery into money, whether investing in stocks or trading options.

Education & Strategy

The sweet spot

When using the Stock Replacement Strategy, we must remember that in reality, we are doing a STOCK trade. We are just using options. We are replacing the stock position with an option position (long calls).

View more education articles »