Options Trading News

September 20, 2016  Tue 7:47 AM CT


A complex trade is looking for the recent uptrend to continue in CarMax, which reports earnings tomorrow.

optionMONSTER's monitoring system detected the purchase of 2,500 October 57.50 calls for $2.50 and the sale of 2,500 October 62.50 calls for $0.75 yesterday. At the same second, 2,500 October 52.50 puts were sold for $1.05.

The strategy combines a bullish vertical spread with short puts. The call spread is looking for KMX to rally above $57.50 by expiration. The sale of the higher-strike contracts reduces the cost of the long calls but limits potential gains, as the trader will be obligated to sell shares if they rise above $62.50. The sale of the puts further lowers the cost of the spread, but the investor will face an obligation to buy shares if they fall below $52.50. (See our Education section)

KMX rose 0.14 percent to $56.58 yesterday and is up 13 percent in the last three months. The used-car retailert is scheduled to announce quarterly results before the market opens tomorrow.

Overall option volume in the name was 10 times greater than average yesterday.

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