Options Trading News

February 11, 2013  Mon 9:22 AM CT

Shutterfly exploded higher last week, and one investor expects the gains to continue.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 5,000 March 42.50 calls for $1.35 and the sale of 2,600 March 37.50 puts for $0.45. Volume was more than triple open interest at both strikes.

The strategy cost $558,000 to implement and is similar to owning shares in the photo-sharing website, with the long calls appreciating in value in the event of a rally and the short puts losing value. The opposite will happen to the downside. If SFLY remains between $37.50 and $42.50 through expiration, the entire position will become worthless.

SFLY is down 1.72 percent to $41.18 in morning trading but is up 62 percent in the last three months. Much of that move occurred on Feb. 5, when quarterly results beat expectations and management issued strong guidance. It was at least the fourth consecutive report with earnings exceeding consensus estimates.

One unusual thing about today's strategy is that the investor bought more calls than the number of puts he or she sold that. That reduces their risk of loss but also increases their cost basis. (See our Education section for more on selling puts.)

Total option volume is quadruple the daily average so far this morning, according to the Heat Seeker.
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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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