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Is pullback in store for Office Depot?

David Russell (david.russell@optionmonster.com)

Office Depot has been climbing, but one someone worried that what goes up might come down.

optionMONSTER's Depth Charge monitoring program detected the purchase of some 9,500 November 4.50 puts for $0.25. Volume was almost 40 times the previous open interest at the strike, indicating that new positions were initiated.

Puts lock in the price where shares can be sold in the office-supply retailer, so they can be used to protect a long position or to speculate on a pullback. Today's buyer is probably using the contracts as a hedge to protect recent gains.

ODP is up 0.51 percent to $4.93 in afternoon trading. The stock has climbed 14 percent since lighting up our researchLAB market scanner on Sept. 20, while the S&P 500 is down about 2 percent over the same period. It was also featured on our closed-door Market Action webinar that day.

The company is preparing to consummate its merger with OfficeMax in a deal that's expected to improve profitability. Both stocks traded in a narrow range for most of the year but have broken out since appearing on researchLAB.

Today's other big trade in the name resulted from 10,000 April 5.50 calls being sold for $0.40. That transaction obligates the investor to unload his or her shares for $5.50 if they're above that level by expiration and reflects concern about a pullback.

Total option volume is quadruple the daily average in ODP so far today, according to the Depth Charge.

Disclosure: I own ODP shares.

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