• 
• See all for optionMONSTER
• View Print Version

• Bullish strategy dials into Telefonica

• ANF 50% Rate It

Abercrombie & Fitch has been lagging the market, but one trader has fashioned a bullish strategy.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 2,500 January 40 calls for $3.10 and the sale of an equal number of January 35 calls for $2.59. Volume was more than twice open interest at both strikes.

The trade cost $0.51 and is similar to owning shares in the clothing retail. They'll make money on the long calls in the event of a rally while losing money on the short puts if it declines. The main difference from owning stock is that it will track the underlying less closely as time passes and expire worthless if ANF remains between $35 and $40 by early next year.

ANF fell 2.21 percent to $38.49 yesterday. It's down 40 percent in the last year after sales and margins weakened, but traders have stopped selling the news recently and have been driving the shares higher since early August.

Another feature of yesterday's trade is that the investor will be forced to buy shares if the stock closes at or below $35 on expiration. Given that it fluctuated on either side of that level in July and August, they may consider it support and be willing to own it at that level.

In other words, the combination strategy will let them profit from a quick rally while also programming a buy order if the shares pull back. (See our Education section for more on how options can be used to manage positions.)

Related Options Articles

• 
  How four-way play is bullish on HCA
  5/21/2013 02:24 AM
• 
  Corporate earnings lead the calendar
  5/21/2013 01:24 AM
• 
  Stocks Little Changed as Slow News Day Draws the Focus to the Fed
  5/20/2013 04:20 PM