Big leveraged bet in Office Depot

optionMONSTER

Office Depot has pulled back following a big move, but one large trader is highly bullish on the long run.

optionMONSTER's Heat Seeker monitoring program detected the purchase of about 4,100 January 2016 7 calls for $0.575 and the sale of about 2,800 January 2016 5 puts for $0.90. Volume was more than quadruple open interest at both strikes, which indicates that new positions were initiated.

The resulting strategy is highly leveraged to the shares because it involves short puts and long calls --with positive delta on both sides. It cost about $16,000, and will control the equivalent of over 250,000 shares. (See our Education section)

ODP rose 5.34 percent to $5.33 yesterday and is up 26 percent in the last three months. Most of that move followed a strong quarterly report in early May. Management also raised guidance and announced store closures as the company digests its purchase of OfficeMax.

It's also noteworthy that the investor chose to write puts at $5 because that's the level of ODP's 200-day moving average and is roughly the same area where it peaked in February before selling off. He or she may therefore expect it to provide support.

Yesterday's total option volume in ODP was more than 7 times average, according to the Heat Seeker.


More From optionMONSTER

View Comments (0)