Calls are stacking up at Barnes & Noble
David Russell | [email protected]
optionMONSTER's Heat Seeker tracking system detected early buying in the October 14 calls for $0.55, with almost 1,200 contracts purchased in the first half-hour of trading. Volume exceeded open interest of 999 in the strike at the beginning of the day, indicating that new positions were initiated.
Later in the session, the trades were already paying off. As the stock surged as much as 12 percent, those October 14s almost tripled to $1.40. The book retailer ended the day up 8.18 percent at $14.94.
Calls lock in the price where investors can purchase shares. These options can generate significant leverage if the stock climbs, but they will lose most or all of their value in the absence of a rally. (See our Education section)
In another big trade during the afternoon, investors bought the January 16 calls for $1.60 and sold the January 21s for $0.30. This position cost $1.30 to open and will let them collect the $5 spread between the two strike prices if BKS goes to $21--a profit of 285 percent on a 40 percent in the share price.
Short interest is more than 25 percent of the float, which could trigger a big rally if those bears are forced to cover their positions.
Total option volume was times greater than average in BKS yesterday, with calls outnumbering puts by almost 2 to 1.
(A version of this post appeared on InsideOptions Pro yesterday.)