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The shares of RadioShack Corporation (NYSE:RSH - 3.22) rallied nearly 22% on Monday, stopping right at their 200-day moving average -- a trendline that hasn't been conquered since October 2010. The stock's upward momentum attracted a bevy of option bulls, with speculators scooping up short-term calls to gamble on more upside for the electronics retailer.
By the time the dust settled, RSH had seen roughly 13,000 calls cross the tape -- about seven times its average daily call volume, and more than double the number of RSH puts exchanged. Most popular were the February and March 3-strike calls, which saw about 3,400 and 2,600 contracts change hands, respectively. The bulk of the calls crossed at the ask price, and open interest skyrocketed at both strikes overnight, confirming our suspicions of newly bought bullish bets.
More specifically, the February 3 calls traded at a volume-weighted average price (VWAP) of $0.18, indicating a breakeven level of $3.18 (strike plus VWAP) -- which RSH already surmounted in eleventh-hour trading yesterday. Meanwhile, the VWAP of the March 3 calls was $0.26, suggesting the buyers will make money if RSH can topple the $3.26 level within the next couple of months. However, even if the stock pulls back, the most the traders can lose is the initial premium paid for the calls.
From a broader sentiment perspective, yesterday's appetite for bullish bets merely echoes the growing trend. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day call/put volume ratio of 2.52 registers in the 83rd percentile of its annual range, implying that option buyers have picked up calls over puts at a faster-than-usual clip during the past couple of weeks. However, considering RSH is trading in the low single digits (meaning limited downside for put buyers), it's not too surprising to find a call bias.
Ahead of the bell, RSH is poised to extend yesterday's rally -- and potentially conquer its aforementioned 200-day moving average -- with the shares pointed 1.9% higher.