Heavy call trading yesterday in Office Depot was part of a larger volatility strategy.
About 9,000 August 5 calls traded yesterday, dominated by a block of 8,600 that went for $0.36. Open interest in the strike was just 369 contracts before the trade appeared, so it is clearly a new position.
Just afterward, 516,000 shares of ODP were bought for $5.14. Combined with the option trade, this creates a delta-neutral strategy that is looking for volatility to be lower than that implied by the price of the calls.
That makes sense, given that the average implied volatility of the options is 50 percent while the 20-day historical volatility is down at 33 percent. (See our Education section)
ODP was down a penny yesterday to close at $5.11. The office-supply retailer has been falling for the last two weeks after testing resistance at $5.80.
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