RadioShack faces range-bound play

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RadioShack has made a big move, and now traders think it's ready to snooze.

optionMONSTER's tracking systems detected the sale of 5,000 October 4 calls for $0.40 and 5,000 October 4 puts for $0.47. That totals up to a credit of $0.87.

Selling calls obligates the investor to unload a stock, making them effectively short at certain levels. Selling puts forces him to her to buy shares on a drop, making them effectively long. Combining the two strategies reflects a belief that the retailer will move neither higher nor lower. If they're right, they'll keep the $0.87 and both contracts will lose value over time. (See our Education section for more on the trade, known as a short straddle .)

RSH is down 1.5 percent to $3.93 this afternoon but has rallied more than 40 percent since the beginning of August. That move came as the shares rebounded from a multi-year selloff and returned to their peaks from mid-May. Some chart watchers may now expect a period of consolidation, which would explain today's option trade.

More than 14,000 contracts have traded in the name so far today, compared with just 6,400 in a typical session.

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


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