Unusual earnings play in Deckers


Deckers Outdoor reports earnings tonight, and traders are looking for a quick move.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 2,000 Weekly 60 calls expiring tomorrow for $2.05. An equal number of December 67.50 calls was sold at the same time for $1.25. Volume was more than twice the previous open interest at each strike, indicating that new positions were initiated.

Known as a diagonal spread , the trade is designed to time a move in the stock price. If DECK rallies above $60 by tomorrow's close, the investor will be required to buy shares. He or she will then have a covered-call position against the December 67.50s. (See our Education section)

The benefit of the strategy is that it offers exposure to a rally at a cost of just $0.80, with potential profit of $6.67. If the footwear retailer drops, the trader will be naked short calls, but those December contracts will then also be cheaper to buy back.

DECK is down 0.38 percent to $57.62 in midday trading. It enjoyed a huge rally between 2009 and late 2011 but then lost 80 percent of its value in the next 12 months. The stock rebounded sharply in the last year and is now trying to hold support at its 100-day moving average.

Total option volume is slightly above average in the name, with calls outnumbering puts by 8 to 1.

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