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Bulls bet Select Comfort will spring back

By: optionMONSTER
Posted: 5/9/2012 5:14:00 AM
Referenced Stocks: SCSS

Traders apparently believe that Select Comfort saw capitulation selling yesterday.

Fueled by strong demand for its luxury mattresses, SCSS rallied about 400 percent between September 2010 and April 2012. It's been pulling back sharply since then, and at one point yesterday had fallen more than 30 percent from its all-time high. Shares rebounded from that low but still closed the day down 5.58 percent to $26.71.

Near the bottom, traders stepped in to sell the May 25 puts, with the largest blocks pricing for $1.27 and $1.28. Volume surpassed 5,000 contracts and was more than 6 times the open interest in the strike.

Buying was detected in the May 25 calls for $1.30 to $1.62 around the same time. Some 1,935 changed hands against previous positioning of just 217 contracts.

It's not clear whether the activity was the work of a single investor, but it was bullish. Selling puts obligates them to buy shares if they close below $25, while buying calls allows them to leverage a move higher. (See our Education section)

Overall option volume was 7 times greater than average in the session. SCSS also attracted bullish call buying in the May 30 contracts last week .