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Amid unsubstantiated buyout buzz, Chico's FAS, Inc. (NYSE:CHS) is up 2.8% today to trade at $15.71, erasing a portion of Wednesday's earnings-induced plunge of 4.6%. This, despite earlier receiving a $1 price-target cut to $14 at Mizuho. Meanwhile, call volume has exploded to 26 times the typical intraday amount, and traders are targeting short-term contracts, per CHS' 30-day at-the-money implied volatility, which is up 10.1% at 32.6%.
According to Trade-Alert and data from the International Securities Exchange (ISE), the clothing designer is seeing buy-to-open activity at the October 17 call, where more than 12,000 contracts are on the tape -- easily the most of any CHS strike. More than half of this volume traded as a multi-exchange sweep of 10,003 contracts, at an average ask price of $0.29 each, or roughly $290,000 (premium paid * number of contracts * 100 shares per contract). This represents the speculator's maximum potential risk, should Chico's FAS, Inc. (NYSE:CHS) be sitting below the strike at October options expiration. Conversely, gains are theoretically unlimited, should the equity muscle north of $17.29 (strike plus premium paid) at the close on Friday, Oct. 17, when the back-month options cease trading.