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RadioShack (RSH - 7.51) was hit with a barrage of call activity yesterday, as approximately 13,000 of these options were exchanged, more than tripling the equity's average daily volume. Close to 6,000 calls were traded at the near-the-money February 8 strike -- over half of them at the ask price, suggesting they were purchased. Open interest at this strike climbed by 728 contracts overnight, so it can be assumed that some of the volume consisted of newly opened positions. This option now carries peak call open interest of 6,584 contracts. In order for speculators to collect a profit on these bought-to-open calls, the stock must ascend north of the $8 mark by the time front-month options expire.
This predilection for calls over puts appears to be part of RSH's ongoing trend. In fact, according to the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity sports a 10-day call/put volume ratio of 3.33 -- confirming that calls bought to open have more than tripled puts during the past couple of weeks.
However, it should be noted that short interest on the electronics retailer soared by 45.6% over the past two reporting periods, and now accounts for a lofty 16.43% of the equity's float -- or nearly eight days' worth of pent-up buying demand. This raises the possibility that some of the recent call volume is the work of short sellers seeking to hedge their bearish bets.
RSH has proven to be a technical laggard so far in 2012, having shed around 23% year-to-date, and woefully underperforming the broader S&P 500 Index (SPX) by almost 48% during the past 60 sessions. On the charts, the stock continues to trade well below its 10-week and 20-week moving averages, both of which have acted as double-barreled resistance since mid-November.
In the mid-morning hours of the session, RSH remains nearly flat with Wednesday's close of $7.51.