What's behind big call activity in Tiffany

optionMONSTER

Tiffany is back to a long-term support level, and one investor is bullish.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 2,000 August 52.50 calls for $1.65 and the sale of an equal number of January 60 calls for $1.62. Volume was below open interest in the January contracts, so there are two possible explanations for the activity.

One is that an existing long position was closed and rolled to the lower strike. That would give the investor more exposure to a rally in the near term but significantly reduce the duration of the trade.

Alternatively, it could have been a new diagonal spread. That entails buying and selling options at different expiration months to take advantage of higher premiums in the longer-dated contracts.

In that case, he or she would have the right to buy TIF for $52.50 if it closes at or above that level on Aug. 17. The trader, who paid just $0.03 to lock in that strategy, would then be obligated to sell for $60 five months later. (See our Education section)

TIF fell 1.09 percent to $51.83 yesterday. The iconic jeweler has lost more than one-third of its value after hitting an all-time high last summer and is now trading in the same area where it peaked in late 2007. Some chart watchers may expect that level to become support, which would explain yesterday's trade.

Overall option volume was twice average levels in the session, with calls outnumbering puts by more than 2 to 1.

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