Will Coach come back after plunge?
David Russell | firstname.lastname@example.org
optionMONSTER's Heat Seeker monitoring system detected the purchase of 4,000 August 52.50 calls for $2.80 and the sale of an equal number of August 57.50 calls for $1.325. Volume was more than 5 times the previous open interest at each strike, so this is clearly new positioning.
The trade cost $1.475 to open and will earn a maximum profit of 239 percent if the specialty retailer closes at or above $57.50 on expiration. (See our Education section for more on the strategy, which is known as a bullish call spread because it leverages a move between two prices.)
COH fell 1 percent to $48.61 yesterday. It plunged on Jan. 23 after earnings lagged estimates and management announced a big change in its marketing strategy. Shares have been parked at long-term support around $50 since.
Using a call spread lets the investor take a shot with limited risk, looking for shares to retrace last month's bearish gap. It's an ideal strategy when a stock could have a dead-cat bounce but might also continue lower.
Total option volume in the name yesterday was almost twice its daily average, with calls dominating the action.