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How the bulls are playing Gap

David Russell (david.russell@optionmonster.com)

Gap is rallying today, and traders are scrambling for a piece of the action.

optionMONSTER's Heat Seeker monitoring system detects extreme upside positioning today, with short-term bets leading the order flow. More than 4,500 Weekly 37.50 calls expiring tomorrow were purchased, mostly for $0.18 to $0.34, in volume far above previous open interest of just 331 contracts.

The February 38s were the second most popular contracts, with almost 2,500 purchased for $0.63 to $1.01. The March 36 and February 40 calls rounded out the activity.

These long calls lock in the price where shares can be purchased, letting investors cheaply position for a rally. This way, only a limited amount of capital is at risk if they're wrong about the direction. (See our Education section)

GPS is up 3.36 percent to $38.03 in afternoon trading. The once-mighty retailer rallied hard in 2012 and early 2013, showing signs of coming back to life after more than a decade of languishing in a range.

The stock has pulled back along with other companies in the industry but has been holding support around the same $36 level where it peaked 15 months ago. That could make some chart watchers believe that it's ready to bounce.

In addition to the technicals and improving fundamentals, there was also takeover buzz in the name today.

Calls account for a bullish 78 percent of today's option volume, according to the Heat Seeker. Overall activity is 6 times greater than average amounts.

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