Options Trading News

August 14, 2013  Wed 3:16 AM CT

Rite Aid has been working its way higher since the end of 2012, and one trader is looking for the stock to reach a level it has not seen in more than five years.

optionMONSTER's Heat Seeker system detected the purchase of 2,000 September 4 calls in one print for $0.10 yesterday. The volume was well above the strike's open interest of 260 contracts before the trade appeared, clearly showing that this is a new position.

These long calls lock in the price where traders can buy the stock no matter how far it might rise. But the contracts will expire worthless if RAD remains below $4 through mid-September. (See our Education section)

RAD rose 3.96 percent yesterday to close at $3.41. The stock has been trending higher since briefly dipping below $1 late last year, but it has not traded above $4 since December 2007.

Earlier this month, the drugstore chain reported that revenue from July same-store sales rose 1.3 percent year over year. The company is scheduled to report August sales on Sept. 5, followed by its next quarterly results on Sept. 19.

Total option volume in RAD exceeded 11,800 contracts yesterday, more than triple its daily average for the last month. Overall calls outnumbered puts by a bullish 32-to-1 ratio.
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The art of trading

As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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