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Big Lots, Inc. (BIG) Option Traders See Rebound Ahead

BIG near-term calls are extremely popular today

by 12/17/2013 2:44 PM
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Big Lots, Inc. (NYSE:BIG) calls are flying off the shelves at lightning speed today. At last check, more than 8,500 of these contracts had crossed the tape -- that's about 25 times the average intraday norm, and 27 times the number of puts traded thus far.

In highest demand is the January 2014 32.50-strike call, where around 7,000 contracts have changed hands, roughly two-thirds of which went off at the ask price. Furthermore, implied volatility at this strike has spiked, and volume exceeds current open interest, suggesting fresh bullish positions have been opened here.

From the outside, it appears today's speculators are simply rooting for BIG -- perched at $31.00 -- to rally past $32.50 by January 2014 options expiration. However, there could be another motive driving this call-heavy volume.

Considering short interest accounts for 9.5% of BIG's float, it may be that some of today's speculators are buying out-of-the-money calls to hedge against a potential rebound. Moreover, according to Trade-Alert, today's activity could also be the work of "bottom fishers" looking to bet on the recovery of a depressed stock for cheap. The shares are down 20.5% from their Dec. 3 high of $39.01 (thanks to a weak third-quarter earnings report on Dec. 5). And currently, the calls' implied volatility of 32% sits well below BIG's one-month historical (realized) volatility of 51.4%, meaning the bets are very affordable right now.


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