Why bulls are tuning into RadioShack

RadioShack is bleeding money, but the market is finding cause for hope.

optionMONSTER's Heat Seeker monitoring program detected the purchase of about 3,000 March 2.50 calls for $0.49 to $0.56. The volume was well above the strike's previous open interest of just 686 contracts, indicating that new money was put to work on the long side.

Those long calls are in the money , so they will closely track movements in the stock price. They lock the level where shares can be purchased and will roughly double in value if RSH climbs barely 10 percent in the next three weeks. (See our Education section for more on how to generate leverage with options.)

RSH, which is up 3.28 percent to $3.15 in afternoon trading, has been attempting to hold support at all-time lows for the last year. The bears have been pounding the electronics retailer's stock during that time, pushing short interest to about one-third of the float.

While today's earnings report missed expectations once again, management said gross margins are stabilizing. Even more important, the company said it may sell assets if business doesn't improve. That would reduce the danger of bankruptcy and give the shorts a reason to cover.

RSH is also sitting at its 200-day moving average, which could be leading some chart watchers to expect a rally if it breaks this resistance level.

Overall option volume is almost quadruple the daily average so far today, according to the Heat Seeker. Calls account for more than 60 percent of the total.

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