Retail pullback draws bulls to Ross
(The following is an example of notable trading cited on optionMONSTER's InsideOptions Pro service yesterday.)
Retailers got slammed after poor results from Macy's yesterday, but traders are looking for better numbers from Ross Stores next week.
optionMONSTER's Heat Seeker system shows that about 14,000 November 50 calls were purchased for $1.10 to $1.30 in volume that was 10 times the strike's open interest, indicating that these are new positions. Another 5,100 December 50 calls were bought for $1.50 to $1.80 against open interest of just 82 contracts in that strike.
These long calls lock in the price where the stock can be purchased no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, providing potentially significant leverage, but the contracts will expire worthless if shares remain below $50 through their respective expirations. (See our Coaching section)
ROST was down 2.78 percent to close at $48.55 yesterday, following the rest of the sector lower. The discount retailer gapped down from above $55 after its last earnings report in August when the broader market dropped, and shares are near the bottom of a tight range that has been in place since then.
Yesterday's call buyers may believe that bad news is priced into the stock, ahead of retails sales and consumer-sentiment data scheduled for release tomorrow. Ross reports third-quarter results on Nov. 19 after the market closes.
Total option volume in the name reached 27,000 yesterday, 24 times its daily average for the last month. Overall calls outpaced puts by a bullish 5-to-1 ratio.
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