Why calls are surging in Abercrombie


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Shares of Abercrombie & Fitch are tumbling near midday trading, but it is call action that leads option volume in the name.

ANF is down 6.14 percent to $45.99, with earnings are a week away. The apparel company traded above $54 just a week ago. It is now on pace for the lowest close since gapping high on the last earnings report in mid-February.

More than 36,000 ANF options trade, compared to a daily average of 4,500. Calls outpace puts by almost 10 to 1, and more than half of that volume is in one spread, according to optionMONSTER's systems.  

A trader bought 5,000 May 49 calls, with a big block of 3,973 bought for $1.90, above the ask price at the time. The previous open interest was 649 contracts, so this is a new position.

Seconds later the trader sold 10,000 May 52.50 calls, with a block of 7,946 going for $0.83. This volume was less than the open interest at that strike of 10,198, so this part of the trade could be a closing transaction.

Given the data, this appears to be a call ratio spread . The trader would then be spending just $0.24 to get upside exposure up to that $52.50 strike level. That cost is also at risk to the downside, and the trader could see further losses if ANF rises above the higher strike price because he or she would be effectively short shares at that point. (See our Education section)

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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