Will Coach come back after plunge?

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Coach fell hard last month, and one investor is looking for a rebound.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 4,000 August 52.50 calls for $2.80 and the sale of an equal number of August 57.50 calls for $1.325. Volume was more than 5 times the previous open interest at each strike, so this is clearly new positioning.

The trade cost $1.475 to open and will earn a maximum profit of 239 percent if the specialty retailer closes at or above $57.50 on expiration. (See our Education section for more on the strategy, which is known as a bullish call spread because it leverages a move between two prices.)

COH fell 1 percent to $48.61 yesterday. It plunged on Jan. 23 after earnings lagged estimates and management announced a big change in its marketing strategy. Shares have been parked at long-term support around $50 since.

Using a call spread lets the investor take a shot with limited risk, looking for shares to retrace last month's bearish gap. It's an ideal strategy when a stock could have a dead-cat bounce but might also continue lower.

Total option volume in the name yesterday was almost twice its daily average, with calls dominating the action.



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: COH

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