Office Depot Inc (ODP) Breaks Out on M&A Buzz

Office Depot Inc (NASDAQ:ODP) is sharply higher after reports Amazon.com, Inc. (NASDAQ:AMZN) could buy its corporate business unit

by Alex Eppstein

Published on Mar 17, 2016 at 11:11 AM

To the supposed delight of option bulls, Office Depot Inc (NASDAQ:ODP) has burst 5.8% higher to $5.67, after The New York Post reported Amazon.com, Inc. (NASDAQ:AMZN) could be nearing a deal to acquire the office supply seller's corporate business unit. According to sources, this could also pave the way for ODP to complete its merger with Staples, Inc. (NASDAQ:SPLS).

As alluded to, option traders have been bullish toward ODP. Specifically, during the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open more than 24 calls for every put. The resultant call/put volume ratio of 24.40 ranks in the high 82nd percentile of its annual range.

Open interest levels also hint at a bullish bias among short-term option traders. ODP's Schaeffer's put/call open interest ratio (SOIR) stands at 0.44, meaning calls more than double puts among options with a shelf-life of three months or less.

Digging deeper, peak call open interest in the soon-to-be front-month April series resides at the out-of-the-money 7 strike, with nearly 39,300 contracts. Based on data from the three major exchanges, the lion's share of these calls have been bought to open in recent months, suggesting traders expect Office Depot Inc to muscle atop $7 by the close on Friday, April 15, when back-month options expire. Looking back, the shares haven't traded north of that strike since last November.

Turning briefly to AMZN, the e-tail stock has moved 2.4% lower at $560.21. However, the shares have recently consolidated into their ascending 40-week moving average, which could serve as a springboard going forward. Analysts certainly see big things ahead for Amazon.com, Inc., with 26 of 31 rating the stock a "buy" or better, versus five "holds" and not a single "sell" opinion.

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