Sears Holdings's stock is up sharply this year but still needs to double to get back to where it was a year ago. Today one option trader is set up to profit from that possibility.
Shares of the department-store operator are up 2.18 percent to trade at $48.33 this afternoon. SHLD was above $80 in early November and above $90 a year ago, but it was below $32 coming into 2012 and hit a 52-week low of $28.89 in that first week.
Today's options trading is dominated by one trade that has pushed the overall call/put ratio in the name to more than 6 to 1. A trader sold 2,125 June 50 calls for $5.10 and bought 6,450 June 75 calls for $1.60. The previous open interest at both strikes was less than 1000, so this is a new opening position.
In this type of trade, known as a backspread , the trader keeps a small credit as profit if SHLD remains below $50 in the coming months. But if the stock runs sharply higher, regaining the ground lost in 2011, the position can make huge profits because the trader is long significantly more calls than they are short as this is also a ratio spread . (See our Education section)
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