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Trade looks to bag gains in Vera Bradley

By: optionMONSTER
Posted: 5/21/2012 3:38:00 AM
Referenced Stocks: VRA

Vera Bradley has been dropping like a rock, but one investor is looking for a rebound in the maker of women's accessories.

optionMONSTER's Heat Seeker monitoring program detected the purchase of about 2,700 June 25 calls for $1.44 and the sale of an equal number of June 30 calls for $0.27, resulting in a debit of $1.17. Volume was below previous positioning in the 30s, so there are two possible explanations for the activity.

One is that both trades were opening transactions, in which case this is a bullish call spread . If VRA closes at or above $30 on expiration, the position would earn a maximum profit of 327 percent.

In another scenario, the investor may have previously owned the 30s, looking for shares to climb. But now that that the stock has fallen, he or she could be rolling the calls to the lower strike. That would increase the position's delta and provide more leverage to upside in the stock price.

Either way, both strategies reflect a belief that the stock will push above $26 in the next four weeks.

VRA declined 4.63 percent to $21.82 on Friday. It's lost about 40 percent of its value since March 14, when a weak profit forecast drove the shares lower. The news overshadowed better-than-expected quarterly results on the top and bottom lines.

Overall option volume was 13 times the average amount in Friday's session, according to Heat Seeker. Calls outnumbered puts by almost 6 to 1.