Coach pullback draws bullish strategy

By David Russell,

Shutterstock photo

Coach retreated yesterday, and one investor used the opportunity to get long the luxury retailer.

optionMONSTER's Heat Seeker tracking system detected the purchase of 2,000 April 75 calls for $1.95 and the sale of an equal number of April 65 puts for $0.75. A block of 4,000 April 80 calls was also sold for $0.50. Volume was more than 7 times open interest in all three strikes.

The trade resulted in a cost of $0.20 and will earn a maximum profit of 2,400 percent if COH closes at $80 on expiration. Gains will erode above that level and turn to losses over $85. It also stands to lose money below $65.

The strategy combines elements of a ratio spread with a bullish combination trade. (See our Education section)

COH declined 4 percent to $73.12 yesterday but is up 23 percent since mid-December. The maker of handbags and women's accessories has been ripping to new all-time highs, beating estimates the three last times it issued quarterly results.

It peaked around $66 and $68 on two occasions last year, which could be leading some chart watchers to expect that it will now find support around that area. That could also make them confident enough to sell puts at the $65 strike, in addition to buying calls .

Overall option volume was 5 times greater than average in the session, according to the Heat Seeker.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: COH

More from optionMONSTER




Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by