Strategy shoots for rally in Shutterfly

optionMONSTER

One trader is hoping that Shutterfly is ready to take wing by next spring.  

A trader bought 3,000 March 27.50 calls in a single print for $2.45 and sold 3,000 March 22.50 puts for $1.30. The volume was well above the open interest in each strike at the beginning of the day, indicating new positions.

This combination trade is directionally similar to buying stock but would benefit from the leverage of the options. If the stock rallies, the calls would gain in value while premiums on the puts would diminish.

SFLY fell 0.82 percent to $26.45 on Friday. Shares of the photo-sharing social network rallied into its last earnings report on Nov. 1 but then dropped sharply on fourth-quarter guidance, falling below several key moving averages.

Friday's option strategy is looking for SFLY to rise more than 13 percent by expiration in mid-March, allowing the trader to keep the credit from the put sale while profiting from gains in the long calls . But if the stock is below $22.50 at that time, the calls will expire worthless and the trader will face the obligation to buy shares at an effective price of $21.20, including the proceeds from the short puts . (See our Education section)

Total option volume in SFLY was 7 times more than its daily average in the last month.

More From optionMONSTER

View Comments (0)