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Options Trading News

September 23, 2013  Mon 12:21 PM CT

GPS: SEE CHART GET CHAIN FIND STRATEGIES
Traders are looking for Gap shares to hold recent gains.

More than 20,000 October 40 puts were sold in about 3 minutes today, led by a huge print of 18,985 that went for the bid price of $0.60, according to optionMONSTER's tracking systems. This is clearly a new position, as open interest in the strike was 3,322 contracts before the trade appeared.

The put seller will keep that $0.60 credit as profit if GPS remains above $40 in the next month. If it falls below that level, the trader will be on the hook to buy shares at an effective price of $39.40 when that credit is included. Traders sometimes sell puts this way in hopes that the stock will pull back so that they can purchase it at a discount. (See our Education section)

Today's activity is the latest in a string of positive trades in the name. Our scanners detected heavy buying in the December 43 calls on Sept. 3 and October 41 calls on Aug. 28.

GPS is down 0.79 percent to $41.22 in afternoon trading. The apparel retailer fell sharply after hitting $46.56 on Aug. 2, its highest price since April 2000, but found support around the $40.50 level and has been drifting higher in recent weeks.

Total option volume in the name is just shy of 22,000 contracts so far today, already 10 times its daily average.

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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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