Repair strategy at work in Conn's


Conn's has fallen hard, and one investor is hoping for a rebound.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 13,000 October 40 calls for an average premium of $3.575. An equal number of January 50 calls were sold at the same time for $2.10, resulting in a cost of $1.475. Volume was more than 60 times open interest at both strikes, indicating that new positions were implemented.

The spread is unusual because the investor sold longer-dated calls than those that were purchased, which could result in a highly dangerous "naked short." But it's likely that he or she owns shares in the electronics retailer and is using the options to make more money from a rebound.

The trader will enjoy significant leverage over $41.48 while also locking in an exit price of $50 on the stock. That will lower the break-even point and help salvage what is probably a losing bet following a big selloff. (See our Education section for more on managing positions with options.)

CONN rose 2.56 percent to $33.31 but has lost more than half its value this year. Much of that drop came last month after management lowered guidance because of delinquencies on consumer loans.

The next earnings report is scheduled for Thursday, March 27.

Total option volume was 16 times greater than average in the session, according to the Heat Seeker. Calls outnumbered puts by 17 to 1.

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