Market 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.
News Archives
OptionsHouse

Education & Strategy

Election Sector Rotation

Sector rotation is the process where mutual funds, portfolio managers, and investors in general, shift their investments from one sector of the economy to another.

More education articles »