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Volatility play targets Fifth & Pacific

Posted
12/4/2012 2:47:00 AM
By: optionMONSTER
Referenced Stocks:FNP

Somebody apparently thinks that options are too cheap in retailer Fifth & Pacific.

Our tracking programs detected the purchase of 2,000 January 11 puts for $0.35 and 2,000 January 13 calls for $0.40. Volume was more than 30 times open interest at both strikes.

Known as a long strangle , the trade will make money from the stock making a big move or from the market perceiving that one is coming. If FNP closes below $10.25 or above $13.75 on expiration, the position will be worth more than the $0.75 they paid to open it. (See our Education section)

Alternatively, if implied volatility increases, it would also drive up the value of the options. That rate is currently around 39 percent, compared with its 48 percent historical average.

FNP rose 1.08 percent to $12.18. The stock is in the middle of its recent trading range and has returned to its level from early October, when weak results at its Juicy Couture chain caused management to cut guidance. yesterday's strangle buyer may expect the shares to rally or crash as the holiday shopping season brings more news on the company's performance.

Total option volume was 4 times greater than average in the session.