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How trader is hedging Foot Locker

By: optionMONSTER
Posted: 11/21/2013 3:45:00 AM
Referenced Stocks: FL

Traders are hedging their bets in Foot Locker before the retailer's earnings report Friday morning.

optionMONSTER's Depth Charge monitoring system detected the purchase of 5,000 December 37 puts for $1.46. Equal numbers of December 35 puts and December 39 calls were sold at the same time for $0.58 and $0.38 respectively, translating into a cost of $0.50. Volume was more than 7 times the previous open interest in each of the three strikes, indicating that new positions were initiated.

The trader probably owns shares in the shoe retailer and wants to hedge against a pullback. He or she now stands to collect $2 if FL drops to $35 but must sell the stock position if it goes $39. (See our Education section for more on the strategy, which combines a bearish put spread with a covered call .)

FL declined 1.19 percent to $36.56 yesterday. The shares are up 8 percent in the last month and are now back around the same level where they've hit resistance for more than a year.  That could make some chart watchers think that it makes sense to sell those December 39 calls.

Overall option volume was 13 times greater than average in the session, with that bearish trade accounting for more than 90 percent of the total.