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Front-Month Call Volume Soars on Office Depot

Speculators show an affinity for ODP calls

by 1/30/2012 1:46 PM
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Call players have targeted Office Depot (ODP - 2.82) today, as more than 2,900 of these options have crossed the tape so far, which is nine times the equity's expected daily volume. The bulk of the trading has centered around the near-the-money February 3 strike, where close to 2,700 calls have changed hands -- almost all of them at the ask price, signaling they were purchased. Currently, this option is home to open interest of just 479 contracts, so it can be assumed that new positions are being initiated here today.

This favoritism toward calls over puts is par for the course on the office product supplier. The Schaeffer's put/call open interest ratio (SOIR) checks in at 0.27, confirming that calls more than triple puts among options expiring within three months. This ratio ranks in only the 29th percentile of its annual range, indicating that near-term options players have been more bullishly oriented toward the stock just 29% of the time during the last 12 months.

However, short interest on ODP rose by 5.54% during the most recent reporting period, and now accounts for a lofty 10.8% of the equity's float -- or roughly eight days' worth of pent-up buying demand. This implies that some of the recent call activity could be the result of hedging activity by short sellers.

Examining ODP's technical performance, the equity has added close to 31% year-to-date, and has outpaced the broader S&P 500 Index (SPX) by over 31% during the past month. On the charts, the stock is trading just beneath resistance at its 40-week moving average, a trendline it has not surpassed since late March.

At last look, ODP is down more than 4% to explore the $2.82 neighborhood. Earlier today, Goldman Sachs backed its "neutral" rating on the retailer.


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