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Yesterday's Fossil Group Inc call buyers are already staring at potential paper profits
Fossil Group Inc (NASDAQ:FOSL) closed Tuesday just 0.5% higher, but has shot up nearly 10% out of the gate to trade at $113.89, following a successful turn in the earnings confessional and news of a stock buyback. Also helping the security is a trio of price-target hikes at Evercore, Jefferies, and Sterne Agee. Taken together, this should be music to the ears of yesterday's option bulls, who wagered on short-term gains in the shares.
Taking a quick step back, FOSL options traded at 10 times the usual daily rate on Tuesday. Tied for the most active strike was the November 107 call, where 1,563 contracts changed hands. Almost all did so at the ask price, and open interest soared overnight, collectively hinting at buy-to-open activity. In other words, the speculators anticipated FOSL would shoot north of $107 by the close on Friday, Nov. 21, when front-month options expire -- a gamble that has already paid off. More specifically, at-expiration breakeven for the now in-the-money call is $110.04 -- or the strike plus the volume-weighted average price of $3.04.
Delta on the call was 0.41 at yesterday's close. However, due to Fossil Group Inc's (NASDAQ:FOSL) gap higher, delta has jumped to 0.79, signifying a nearly 4-in-5 chance the option will be in the money at expiration. What's more, the bid price on the aforementioned option now stands at $6.20, meaning yesterday's buyers can already sell to close their positions for a healthy profit.