O'Reilly Automotive has been falling hard, but yesterday's
option activity was bullish.
Our Heat Seeker monitoring program detected the purchase of 6,100
October 95 calls for $0.25 and the sale of an equal number of
October 70 puts for $0.13. Volume was more than 100 times the
existing open interest at each strike, so this was clearly new
The trade cost just $0.12 and provides exposure to a fast rally in
the auto-parts retailer. The position will expire worthless if the
stock doesn't move quickly, and the trader faces losses in the
event of a sharp drop.
The unusual performance profile results from the fact that both
far from the money
and will track movements in the share price less closely as
. (See our
section for more on the life cycle of options.)
ORLY dropped 4.80 percent to $81.53 yesterday and has lost about 16
percent of its value in the last three months. Much of that decline
came on June 27 after same-store sales missed estimates. It had
peaked over $107 in early May.
Yesterday's bullish trade was tailored to benefit from a big rally
in the stock and appears to be relatively speculative. The investor
probably thinks that it has a low probability of success but also a
modest risk of loss.
Overall option volume in the name was 23 times greater than
average, according to the Heat Seeker.
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