Unusual Covered Call Opportunity In Kate Spade
According to Options and Volatility, shares of Kate Spade & Co (NYSE: KATE) saw unusually high options activity on Tuesday. Notably, the August 25 Calls traded 5,965 contracts versus only 50 open interest. The October 25 calls saw a slight uptick in volume as well, with 228 contracts trading compared to open interest of just 32.
In addition to the increased volume, the implied volatility on the August 25 calls rose dramatically, moving from 42.96 on Monday's close to 50.26 on the close Tuesday, an increase of nearly 17 percent. While shares of Kate fell 0.97 to 21.54 (a drop of 4.31 percent), the August 25 calls were unchanged at 0.55 due to the increased buying pressure. This set up a covered call opportunity, buying shares of KATE and selling an August 25 call for each 100 shares purchased.
Options and Volatility noted this captures a 1.59 percent edge and positions bullishly along with the large call buyer.
The August 25 calls have a delta of 25, while the covered call position has a more bullish delta of 75.
Disclosure: The author had no position in Kate Spade at the time of publishing.
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