Discover trade seeks big leverage
David Russell | [email protected]
optionMONSTER's Heat Seeker monitoring system detected the purchase of 1,950 January 55 calls for $1.20. Equal-seized blocks were sold at the same time in the January 44 puts for $0.80 and the January 60 calls for $0.35.
The complex strategy combines a vertical spread with short puts. Selling additional contracts lowers the cost to just $0.05, and the trader now stands to collect $5 if the credit-card issuer closes at or above $60 on expiration--a potential profit of 9,900 percent.
The main risk is to the downside, because the investor will be forced to buy shares for $44 if DFS goes below that level by early next year. He or she doesn't stand to make any money unless it climbs almost 10 percent above $55. (See our Education section)
DFS is off 0.08 percent to $50.81 in afternoon trading but has been steadily trending higher since the market bottomed in 2009. The stock was sitting at its 100-day moving average barely a week ago when the Heat Seeker detected buying in the September 50 calls for $0.37 to $0.40. It proceeded to climb along with the rest of the market and those contracts have now almost tripled in value.
Total option volume is almost 5 times greater than average in the name so far today, according to the Heat Seeker.