Staples, Inc. (SPLS) Option Traders Eye More M&A Upside

Staples, Inc. (NASDAQ:SPLS) call volume is running at six times the average intraday pace

Mar 22, 2016 at 3:17 PM
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Staples, Inc. (NASDAQ:SPLS) is soaring today -- up 7.2% at $10.26 -- as the company battles it out in court with the Federal Trade Commission (FTC) over Staples' planned merger with Office Depot Inc (NASDAQ:ODP). Meanwhile, call players are flooding SPLS' options pits, gambling on even more upside for the stock over the next two months.

By the numbers, 27,000 calls have changed hands -- nearly 16 times the number of puts that have traded. Most active is SPLS' May 11 call, where it seems safe to assume new positions are being purchased -- a theory echoed by data from the International Securities Exchange (ISE). By buying to open the calls, the traders expect the stock to rally north of $11 by the close on Friday, May 20 -- when back-month options expire.

Widening the sentiment scope reveals that option traders have been more put-skewed among options expiring in three months or less. In fact, SPLS' Schaeffer's put/call open interest ratio (SOIR) of 0.72 sits higher than all other readings taken in the past year.

Drilling down on the front three-months' series of options, peak put open interest of 27,652 contracts is housed at SPLS' June 8 strike. According to the major options exchanges, there's been a mix of buy- and sell-to-open activity here in recent months. For those initiating long puts, the goal is for SPLS to breach $8 by June options expiration. Meanwhile, those writing the puts expect the $8 level to serve as a short-term floor.

On the charts, Staples, Inc. (NASDAQ:SPLS) has been rebounding since hitting a 13-year low of $8.04 in mid-February. However, the last time the stock saw the north side of $11 was in early December -- right before the FTC said it would not support the merger between SPLS and ODP. Regardless of where the stock settles at May options expiration, though, the most today's call buyers have risked is the initial premium paid.

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