Markets

Massive leverage in Rite Aid trade

A large trader apparently thinks that it's the right time to get long Rite Aid.

optionMONSTER's Heat Seeker monitoring program detected a highly leveraged trade in the pharmacy chain, which more than tripled in value last year. It consisted of 10,000 contracts each in the July 6 calls and the July 6 puts. The calls were bought for $0.60, and the puts were sold for the same price, so it cost nothing to implement.

The trade will track movements in RAD penny-by-penny, controlling the equivalent of 1 million shares. Profits or losses will approach infinity on a percentage basis if the stock rallies, with downside risk tied to the short puts . (See our Education section for more on the leveraging power of options.)

RAD is up 0.83 percent to $6.10 in afternoon trading but has been pulling back since touching a 13-year high of $7.05 last month. The stock is now trying to bounce at its 100-day moving average, which also provided support in early February.

Once left for dead because of its weak operations and heavy debt, the company has remodeled stores to win back customers. The next earnings report is scheduled for Thursday morning.

Total option volume is more than triple average levels today, with that bullish combination dominating overall activity.

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

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


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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