One investor expects modest gains for Ross Stores.
optionMONSTER's Heat Seeker monitoring program detected the
purchase of 1,500 May 57.50 calls for $2.27 and the sale of 3,000
May 60 calls for an average premium of $1.135. Volume exceeded open
interest at both strikes, indicating that a new position was
It cost nothing to initiate and will inflate to $375,000 if the
discount retailer closes at $60 on expiration. Gains will erode
above that level and turn to losses over $62.50.
Known as a
, the strategy is designed to leverage a small move. It costs very
little because they sell more contracts at the higher strike. That
also forces them to be short stock at a certain level.
In this case, the investor probably owns ROST shares and is using
the ratio spread as a so-called repair strategy. The trader is
likely down in the stock and now wishes to earn some extra juice
from a move to $60. Above that level, he or she is happy to exit
the position. (See our
section for more ideas on how options can be used to manage
positions and turn losing trades into winners.)
ROST is up 0.78 percent to $58.52. It's down 12 percent in the last
six months despite double-digit gains for the S&P 500 and the
broader retail sector in the same period. The shares are also below
their 200-day moving average, which could be leading some chart
watchers to expect upside to be limited in coming weeks.
Total option volume in ROST is triple the daily average so far
today, according to the Heat Seeker. Calls outnumber puts by 23 to
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.