One investor is targeting a key level on Skechers USA's chart
using a ratio spread.
optionMONSTER's Heat Seeker monitoring program detected the
purchase of 7,500 August 28 calls for $0.90 and the sale of 15,000
August 29 call for $0.525. Volume was more than 18 times the
previous open interest at each strike, indicating that new
positions were initiated.
The trader collected a credit of $0.15 and stands to make an
additional $1 per contract owned on a move to $29. That would
result in additional earnings of $750,000. Profits will erode above
$29, because they would be short 750,000 shares.
The strategy is known as a
because twice as many contracts are sold as the number bought. It
can entail significant losses if the stock moves too far in the
hoped-for direction, so today's investor might be using the trade
in conjunction with a position in the shares.
SKX is up 0.52 percent to $26.88 in morning trading and has risen
19 percent since the beginning of June. The shoe retailer is now
back near the same level where it broke support and then hit
resistance while selling off in August 2010.
That could make today's trader think that it will stall around $29,
giving him or her comfort that the position won't lose money to the
upside. Alternately, the trader might have bought the stock around
that level years ago and now wish to leverage a rebound while also
programming an exit from the position. (See our
section for other ideas on how to repair losing investments.)
The transaction also appeared before SKX's second-quarter earnings
report after the closing bell this Wednesday.
Total option volume is 51 times greater than average in the name so
far today, according to Heat Seeker. Calls outnumber puts by more
than 250 to 1.
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.
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