Five Below has been fighting its way back from a major selloff, and one large trader wants to give it more time to run.
optionMONSTER's Heat Seeker monitoring program detected the purchase of 12,500 November 40 calls for $2.75 and the sale of an equal number of September 40 calls for $1.55. Volume was below open interest in the shorter-dated contracts, which suggests an existing position was closed and rolled forward in time.
Long calls lock in the price where investors can buy a stock, letting them control a move higher at limited cost. They can generate significant leverage if a rally unfolds but can quickly lose value if shares fall. (See our Education section)
FIVE is down 1.27 percent to $38.79 in afternoon trading. The discount retailer peaked around $55 last November, but weak earnings and guidance news erased more than one-third of its value by early February. Shares have been grinding in a range since, with the last two sets of quarterly numbers coming in better than expected.
Today's transaction cost $1.20 and provided the investor with an additional two months for a rally to unfold. It also protected him or her from the accelerating pace of time decay in the shorter-term September contracts over the next few weeks.
Total option volume is 26 times greater than average in the session. Overall calls outnumber puts by more than 25,000 to 45 in the session so far.
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