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April 16, 2013  Tue 12:21 PM CT

JWN: SEE CHART GET CHAIN FIND STRATEGIES
One investor is crafting a complex strategy in Nordstrom, looking for a rally by early next year.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 5,000 January 55 calls for $4.45 and the sale of an equal number of January 60 calls for $2.22. Blocks of 2,000 contracts each traded in the January 50 puts and the January 45 calls at the same time for $2.70 and $1.43 respectively.

This appears to be a long vertical spread in the calls designed to profit from a rally, partially financed by a credit spread in the puts. The trader now stands to make money from a move between $55 and $60 but will be on the hook to buy shares for $50 if they drop below that level. The net cost was $861,000 and its maximum profit will be 190 percent on a move to $60. (See our Education section)

JWN rose 1.25 percent to $55.82 in afternoon trading. The retailer has spent the last 11 months trapped near its previous peak from early 2007 while making steadily higher lows. It surged last week following an upgrade by Topeka Capital Markets but then pulled back along with the rest of the market yesterday.

The company's next earnings release is scheduled for May 16. Total option volume is more than 9 times greater than average so far today.
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Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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