Options Trading News

April 11, 2013  Thu 3:47 AM CT

One investor is using options to time an entry into Gap, which reports same-store sales today.

Our Heat Seeker monitoring system detected the purchase of 5,000 April 38 calls for $0.44 and the sale of a matching number of May 41 calls for $0.19. Volume was more than 7 times the previous open interest at each strike, indicating that new positions were initiated.

Known as a diagonal call spread, the trade cost $0.25 to open and lets the investor lock in a $38 purchase price on the retailer's stock. He or she will then be on the hook to exit the position at $41 if it climbs to that level by expiration in mid-May.

The benefit of the strategy is that it cost relatively little to open and can be closed cheaply if the stock falls. (See our Education section for other risk-management techniques.)

GPS rose 1.22 percent to $37.19 yesterday. It's up 41 percent in the last year and is now parked at its highest price since mid-2000.

Total option volume was 9 times greater than average in the session, according to the Heat Seeker. Calls accounted for a bullish 81 percent of the total.
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Timing the Trade

Both break outs and a break downs need to have a couple things happen before it is considered a confirmed break out or break down by technical definition!  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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