Option volume surged in Ross Stores yesterday as an investor bet
that the discount retailer would continue its advance into record
The trade included the purchase of 5,215 May 62.50 calls for $1,
plus the sale of 5,215 May 57.50 puts for about $0.37 and 10,430
May 65 calls for $0.30. It pushed volume to more than quadruple
open interest in all three contracts.
Selling more options than were bought reduced the cost of the trade
so it actually produced a small credit of about $0.04. The investor
now stands to earn a maximum profit of $2.50 if ROST rallies inches
up to $65. Because the position is short twice as many calls at the
highest strike, he or she will be forced to sell stock above that
The investor is also on the hook to buy more shares for $57.50 if
they drop that low. Given the risk profile, the trade was probably
the work of someone who owns the name. He or she is apparently
willing to buy more stock on a pullback and have extra available to
cover the short calls if it goes over $65.
The strategy combines elements of a
. While unusual, it illustrates the wide variety of ways that
options can be used to manage portfolio positions. (See our
ROST fell 1.16 percent to $61.50 yesterday but is up 67 percent in
the last year. It reports April same-store sales on Thursday and
first-quarter earnings on May 17.
Overall option volume was 15 times greater than average in
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