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Option Brief: Despite gaining 1.7% to trade at $11.41 this afternoon, Staples, Inc. (NASDAQ:SPLS) is attracting less-than-bullish attention in the options pits. However, the strategy being employed by the skeptics doesn't revolve around put buying, as one might expect -- rather, they're using calls to bet against a significant short-term advance in the shares.
So far today, 17,000 calls are on the tape -- eight times the average intraday pace. While there appears to be notable buy-to-open action at SPLS' in-the-money April 11 call, even more attention is being paid to the out-of-the-money April 12 strike. Here, more than 10,000 contracts have changed hands, which exceeds open interest of roughly 4,300. Plus, with the majority of the transactions -- including a block of 5,000 contracts -- going off at the bid price, it's safe to assume seller-driven activity.
By writing the calls to open, the traders are betting against shares of the office supply company rallying beyond $12. Specifically, if SPLS is sitting at or below the strike price at the closing bell on Thursday, April 17, the options will expire worthless, and the call writers will retain 100% of the initial premium collected. However, if the security charges north of the strike, then the traders may be assigned -- forcing them to deliver the shares for $12 apiece, no matter how much they're worth. (Risk is theoretically unlimited with a short call strategy, restricted only by the price of the underlying.)
Despite today's gains, it's not totally surprising to see traders wagering against a big rally for Staples, Inc. (NASDAQ:SPLS). After all, the shares have shed nearly 15% since gapping lower on weaker-than-expected earnings earlier this month. During that trip into the earnings confessional, the retailer also announced that it will close 225 stores by the end of 2015.