Options Trading News

October 26, 2012  Fri 12:21 PM CT

GNC Holdings reports earnings on Tuesday morning, and the bulls are looking for a rally on the news.

optionMONSTER's Heat Seeker monitoring program detected the purchase of more than 5,000 March 40 calls for $2.90. Volume was more than 7 times open interest at the strike.

The trader has now locked in $40 as an entry price for the vitamin retailer, no matter how high the shares climb over the next four months. Those long calls stand to generate major leverage in the event of a rally, while they will lose value if it doesn't climb.

Investors often use options because they're cheaper than the stock, reducing losses if the investor is wrong about its direction. (See our Education section for more on how to manage risk.)

GNC is down 0.63 percent to $38.14 in afternoon trading. It more than doubled between going public in April 2011 and July of this year but has been consolidating since. Earnings have beaten estimates for at least the last four quarters, so today's call buyer is positioning for another strong report.

Overall option volume is 10 times greater than average in the session, with calls outnumbering puts by a bullish 6-to-1 ratio.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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