• 
• See all for optionMONSTER
• View Print Version

• Trader looks for large move in Mosaic
• Strategy plays calendar with VeriSign
• Limited gains seen for Banco Bradesco

• SPLS 57% Rate It

Staples plunged on a weak earnings report yesterday, but one big option trade is betting that the market overreacted.

optionMONSTER's monitoring programs detected the purchase of more than 19,000 January 2014 17 calls against previous open interest of just 213 contracts. The options initially priced for $1.10, but the buying pushed up premiums and the large blocks traded for $1.15.

Those calls lock in the price that the trader must pay to own shares in the office retailer for the next 20 months. These options can generate significant leverage if the stock rallies, but if it doesn't, they will dwindle in value as time passes and eventually expire worthless.

SPLS declined 5.69 percent to $13.91 yesterday, down nearly 9 percent at one point in the session. The selloff came after a weakening European economy dragged down sales and severance costs resulting from employee layoffs squeezed profit margins.

The office-supply retailer has been facing secular headwinds for years amid slow business at its traditional stores. Management is now attempting to compensate with growth in other areas.

Yesterday's calls allow investors to position for a turnaround while risking much less money than they would by owning shares. It also lets them control a large number of shares down the road without having to worry about building that position.

Overall option volume was almost 7 times greater than average in the session. Calls outnumbered puts by 3 to 1, so the option activity was bullish despite the drop in the shares.

(A version of this post appeared on InsideOptions Pro yesterday.)

Related Options Articles

• 
  Dow Posts First Weekly Loss Since Mid-April
  5/24/2013 04:26 PM
• 
  Can Ebix Overcome the Rumors?
  5/24/2013 03:17 PM
• 
  Bulls charge into Facebook at lows
  5/24/2013 01:20 PM