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Will bulls bag profits in Vera Bradley?

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Call buying heated up in Vera Bradley yesterday, with traders looking to bag a rally in the heavily shorted retailer.

optionMONSTER's tracking systems detected the sale of 2,000 November 20 calls for $1.35 and the purchase of December 22.50 calls for $1.05. Volume was below open interest in the November strike, indicating that a long position was closed and rolled to December.

Long calls lock in the price where shares can be bought, letting investors cheaply position for a rally and generate leverage if one occurs. But the options will expire worthless if the stock remains below the strike price. (See our Education section)

In yesterday's case, the trader appears to be exiting a winning bet on the November calls and rolling the position to a higher strike in the December contracts. He or she kept $0.30 in the process and now has an additional month to reap more potential profits.

VRA rose 2.09 percent to $20.98 yesterday. The handbag retailer plummeted to an all-time low of $17.27 on Sept. 12 after its last quarterly report, when it beat earnings and revenue estimates but lowered guidance. It bounced back up to the $20 level the next day and has been trapped in an extremely tight range since.

Short interest represented a hefty 89 percent of the float at the end of last month, which could accelerate buying in the name if it continues higher.

Total option volume in the name was 7 times its daily average for the last month, with overall  calls outnumbering puts by a highly bullish 198-to-1 ratio. Yesterday also saw December 35 call buying in women's apparel company Ann .

(A version of this post appeared on InsideOptions Pro yesterday.)

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