One investor is betting that L Brands will rally in the long run.
optionMONSTER's Heat Seeker monitoring program detected a bullish three-way trade in the retailer expiring in January 2016. It entailed the purchase of 3,600 calls at the 57.50 strike calls for $6.70, plus the sale of matching numbers of 46.50 puts and 67.50 calls, both of which priced for $3. There was barely any open interest at any of the strikes, which indicates that new positions were initiated.
The trade cost $0.70 to implement and will expand to $10 if LB closes at $67.50 or higher at expiration in early 2016. That's a profit of more than 1,300 percent from the stock rising less than 20 percent. (See our Education section for more on the leveraging potential of options.)
LB rose 0.64 percent to $57.76 yesterday. The retailer fell sharply after cutting guidance in January but has been in a steady uptrend since 2009. The stock also spent more than a year trapped below $50 before finding support above it in February. That apparently made Monday's trader comfortable writing puts down at $46.50.
The company, whose main brands are Victoria's Secret and Bath & Body Works, beat expectations in its last earnings report. The next likely catalyst is the release of monthly same-store sales Thursday morning.
Overall option volume was 12 times greater than average in the session, with the bullish strategy accounting for more than 80 percent of the total.
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