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Call buyers trying DSW on for size

Mike Yamamoto (mike.yamamoto@optionmonster.com)

DSW got hammered after its last earnings report in May, but traders are betting that shares of the discount shoe retailer will step up in the next three months.

optionMONSTER's Heat Seeker system has detected heavy buying in the October 30 calls this morning, where more than 2,500 contracts have traded for $1.20 to $1.42. The volume was well above the strike's previous open interest, indicating that these are new positions.

The long calls lock in the price where the stock can be purchased through mid-October no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, providing potentially significant leverage, but the contracts will expire worthless if shares remain below $30. (See our Education section)

DSW is up 3.03 percent to $28.52 today. The stock gapped down from above $33 in late May on poor quarterly numbers and weak guidance, but it bounced at $24 and has been trading sideways at the $28 level for the last month.

Total option volume in DSW is just shy of 3,600 so far today, already 6 times its full-session average for the last month. Only 7 of those contracts are puts, a reflection of the day's bullish sentiment.

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