Large upside trade in Fifth & Pacific

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One investor is targeting the $25 level on Fifth & Pacific with a highly leveraged trade.

optionMONSTER's Heat Seeker monitoring system detected a huge ratio spread on the apparel stock. The trader initially bought 5,000 October 23 calls for $1.90 and sold 10,000 October 25 calls for $1.

He or she returned less than two hours later, this time snapping up 2,500 of the 23s for $1.85 and selling 5,000 of the 25s for $0.90. Combined, that totals up to 7,500 contracts owned at the lower strike and 15,000 sold at the higher strike. The trader collected a credit of $37,500 in the process.

That position will expand to $1.5 million if FNP closes at $25 on expiration. Gains will erode above that level because more calls were sold than were bought. If done in isolation, the trade will face losses above $27.

But there is a good chance that the investor is a long-term holder, looking to repair a losing trade. The stock, formerly known as Liz Claiborne, consolidated around $25 in late 2007 before crashing along with the rest of the market.

The investor may have gotten long around $25 and now wishes to leverage a rebound to that level. Above it, the trader will simply relinquish their shares to cover the short calls. (See our Education section for more on how big-money investors us options to manage positions and turn losers into winners.)

FNP rose 0.09 percent to $22.60 yesterday and is up 82 percent so far this year. Almost 23,000 contracts changed hands, compared with fewer than 100 in an average session. Only 19 puts traded in the session.



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

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


This article appears in: Investing , Options

Referenced Stocks: FNP

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