Credit: Shutterstock photoImplied volatility has been surging in Liz Claiborne, and now investors are using it to their advantage.
optionMONSTER's tracking systems detected heavy call selling in the fashion stock at the same time buyers drive the stock price higher. The activity is consistent with the use of covered call strategies.
The January 10 calls and the October 7.50 calls are the most active strikes, with volume at more than four times open interest. Investors sold about 3,300 January contracts for $0.50 as shares were trading for about $6.25. They'll earn a maximum profit of 68 percent if LIZ closes at or above $10 on expiration.
LIZ rose 7.82 percent to $6.33 percent in early afternoon trading but is down 27 percent in the last month, following a pattern of broad profit-taking in the retail space. The stock has also been falling since management issued weak guidance on May 6.
The selling has pushed up implied volatility in the stock to 76 percent from about 55 percent a month ago. That in turn drove up premiums on the calls, making the covered-call strategies more attractive.
Chart watchers may also expect LIZ to rebound because it seems to have found support around its 200-day moving average, suggesting its uptrend remains intact.
The October calls traded more than 2,600 times, fetching $0.65 when the shares were around $6.16. The traders will make 32 percent if it closes at or above $7.50 on expiration.
Overall options activity is 16 times greater than average in the name so far today.
(Chart courtesy of tradeMONSTER)
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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.
