Unusual bullish play in Fifth & Pacific
David Russell | [email protected]
optionMONSTER's Heat Seeker trade scanner detected an unusual and highly bullish strategy in the company, formerly known as Liz Claiborne. It involved the sale of 15,000 January 2014 10 puts for $1.30 and the purchase of 5,000 January 2014 12 calls for $2.65.
He or she collected an immediate credit of $625,000, but the real gains will occur if the retail stock rallies through $12 over the course of the next 14 months. Above that level, the trader stands to earn infinite profits on the calls, while the sold puts will gradually become worthless.
The unusual aspect of this trade is that 3 times more of those contracts were sold than the number of calls bought. That increased the money received, but it also exposes the trader to major risk if FNP goes under $10 because he or she might have triple the leverage to the downside below that level. (See our Education section for more on selling puts.)
FNP rose 5.21 percent to $12.11 yesterday. The stock had been rallying on hopes of its Juicy Couture chain, but dropped on Oct. 2 after management cited weakness at the brand. Shares consolidated for the next three weeks and have been rebounding since, which could make some traders think that the worst of the news is already priced in.
Overall volume was 25 times greater than average in the session, according to the Heat Seeker.