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Trader Eyes a Long-Term RadioShack Corporation (RSH) Rebound

One option bull bought 15,000 RadioShack Corporation LEAPS contracts

by 5/9/2014 12:17 PM
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Electronics retailer RadioShack Corporation (NYSE:RSH) is about 8% lower this afternoon at $1.35, after confirming it will close a significant number of stores -- though fewer than the 1,100 initially reported. With the sharp move south, the stock has landed on the short-sale restricted list. Meanwhile, options volume is surging -- especially on the call side, where 26,000 contracts are on the tape, compared to an expected intraday amount of fewer than 4,200.

The lion's share of the attention is being paid to RSH's January 2016 1.50-strike call, where more than 18,500 contracts have been exchanged. Digging deeper, about an hour into today's session, a block of 15,000 contracts at the LEAPS strike crossed the tape at the ask price of $0.35 each, suggesting they were bought. Implied volatility soared at the trade, and open interest at the call consists of just 6,426 contracts, collectively implying buy-to-open activity.

In a nutshell, this morning's headline speculator gambled on RSH shares regaining their perch atop the 1.50 strike by January 2016 options expiration. The stock hasn't traded above this level since mid-April, when it plummeted on news that the company was struggling to obtain lender approval to shutter stores. If the equity fails to rebound in the next 20 months or so, the trader risks parting with the initial premium paid, or $525,000 (premium paid * 15,000 contracts * 100 shares per contract).

Taking a step back, RadioShack Corporation (NYSE:RSH) call buyers have been active lately. During the past 10 days on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open nearly 10 long calls for every put. However, some of this may have to do with the stock's modest price, as well as its high levels of short interest -- specifically, 39% of RSH's float is sold short.


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