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Bullish April Speculators Pounce on Sears Holdings Corporation (SHLD)

SHLD sees an upswing in near-term call volume

by 3/12/2013 9:53 AM
Stocks quoted in this article:

Sears Holdings Corporation (NASDAQ:SHLD - 51.02) saw a glut of bullish trading activity on Monday, with roughly 11,000 calls changing hands -- a 71% increase over the security's average daily call volume. By contrast, just over 4,600 puts crossed the tape. A number of optimists zeroed in on the April series of options, and are expecting an extended trek higher within the next several weeks.

Digging deeper, the April 52.50 and 60 calls saw 1,337 and 1,057 contracts exchanged, respectively -- most of them at the ask price, signaling they were bought. Since open interest rose at both strikes overnight, it can be assumed new positions were added here. In the case of the 52.50-strike calls, traders are betting on SHLD to ascend past the $54.60 level (strike price plus the volume-weighted average price [VWAP] of $2.10) by the close on April 19. The delta for these options sits at 0.46, giving them a near 1-in-2 chance of finishing in the money.

Meanwhile, in order for speculators to secure a profit on the 60-strike calls -- which traded at a VWAP of $0.58 -- the stock must surmount $60.58 by April expiration. This represents a lofty 18.5% increase over yesterday's closing price of $51.11. The delta for these calls is docked at 0.16, meaning they have just a 16% chance of moving into the money within the options' lifetime.

However, the retailer is hardly a stranger to bullish speculation. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) shows a 50-day call/put volume ratio of 2.19, confirming calls bought to open have more than doubled puts during the past 10 weeks. This ratio is just 3 percentage points shy of a yearly acme, conveying traders have been snatching up calls over puts at a near annual-high clip.

Likewise, SHLD's Schaeffer's put/call open interest ratio (SOIR) of 0.93 indicates calls slightly outstrip puts among options scheduled to expire within the next three months. This ratio registers in the 16th percentile of its annual range, reflecting a stronger-than-usual preference for near-term calls over puts lately.

SHLD has fared well so far in 2013, climbing more than 23% year-to-date, and besting the broader S&P 500 Index (SPX) by around 18 percentage points during the past two months. Nevertheless, even if the stock fails to conquer the aforementioned strikes, the most yesterday's bulls will be forced to fork over is the initial premium paid.


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