Markets

How the bulls are playing Staples

Staples did nothing in the first quarter, but now traders are coming back in a big way.

optionMONSTER's Heat Seeker monitoring program detected significant long-term bullish activity in the office-supply retailer for a second straight session on Thursday. Some 5,000 January 2017 17 calls were initially bought for $2.60, while equal numbers of contracts were sold in the January 2017 13 puts for $1.50 and the January 2017 22 calls for $1.

Minutes later, 4,000 January 13 puts (expiring one year earlier) were sold for $0.80, and 4,000 January 22 calls were bought for $0.80.

Both strategies are leveraged to the stock, using income from selling downside puts to finance the purchase of upside calls . The longer-dated trade sold the 22s as part of a vertical spread to lower the cost. (See our Education section)

They now control 900,000 shares for an initial outlay of $50,000, with the potential to earn $2.5 million from move to $22 in the next 21 months, plus infinite profits on 400,000 shares by early next year.

SPLS fell 1.1 percent to $16.23 on Thursday. The specialty retailer zoomed up some 50 percent in the last three months of 2014 as it angled to buy smaller rival Office Depot, then eased back to old support levels from the end of 2013. UBS and KeyBanc recently upgraded the company as well, betting that regulators will approve the merger.

Total option volume was triple the daily average on Thursday, according to the Heat Seeker. (See this story for more on similar activity from Wednesday.)

It's especially noteworthy that all the transactions involve short puts at the 13 strike, not far from the peaks of last May and September. Traders are now placing a huge bet that support level will hold well into the future.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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