Bulls show strong appetite for Darden
David Russell | email@example.com
optionMONSTER's Heat Seeker tracking program on Friday detected the purchase of 6,000 July 55 calls for $0.59 and the sale of an equal number of July 47 puts for $0.76. Volume exceeded open interest at both strikes, so both legs of the trade were opened.
DRI rose 2.65 percent to $51.46 on Friday and has spent the last year consolidating above the pre-meltdown highs of 2008. Its last earnings report beat expectations as sales continued to grow and lower food costs helped margins.
The company's next results will be released this Friday, June 22. Its brands include Red Lobster, Olive Garden, and LongHorn Steakhouse.
If DRI rallies, those July 55 calls will appreciate and the July 47 puts will dwindle in value, making money for the investor. The opposite will be true to the downside.
One noteworthy thing about the strategy is that the trader collected a credit of $0.17, despite the stock being above the midpoint between the two strike prices. That was possible because implied volatility was 39 percent in the puts versus 29 percent in the calls. (See our Education section) See our Education Section for more on how to exploit rich premiums before major news event such as earnings reports.
Later in Friday's session, another 3,000 July 60 calls were bought for $0.15, which reflects a belief that DRI could gap dramatically higher on the results.
Overall option volume was 12 times greater than average in the session, according to the Heat Seeker.