One investor is using options to time an entry into Gap, which reports same-store sales today.
Our Heat Seeker monitoring system detected the purchase of 5,000 April 38 calls for $0.44 and the sale of a matching number of May 41 calls for $0.19. Volume was more than 7 times the previous open interest at each strike, indicating that new positions were initiated.
Known as a diagonal call spread , the trade cost $0.25 to open and lets the investor lock in a $38 purchase price on the retailer's stock. He or she will then be on the hook to exit the position at $41 if it climbs to that level by expiration in mid-May.
The benefit of the strategy is that it cost relatively little to open and can be closed cheaply if the stock falls. (See our Education section for other risk-management techniques.)
GPS rose 1.22 percent to $37.19 yesterday. It's up 41 percent in the last year and is now parked at its highest price since mid-2000.
Total option volume was 9 times greater than average in the session, according to the Heat Seeker. Calls accounted for a bullish 81 percent of the total.
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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.