FTC Rebuke Fires Up Staples, Inc., Office Depot Inc Options Traders

Staples, Inc. (NASDAQ:SPLS) and Office Depot Inc (NASDAQ:ODP) options are flying off the shelves

Mar 24, 2016 at 12:05 PM
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Staples, Inc. (NASDAQ:SPLS) and Office Depot Inc (NASDAQ:ODP) are both sharply higher, after a judge ripped the "disturbing" tactics employed by the Federal Trade Commission (FTC) to prevent the two companies from merging. Amid the news, options volume toward the two retail stocks has taken off.

Starting with SPLS, calls are crossing the tape at 11 times the expected intraday rate. Per Trade-Alert, options traders are buying to open the April 10 and 10.50 calls, which are the two most active strikes so far -- with nearly 14,000 total contracts exchanged. By purchasing these positions, the speculators anticipate SPLS will continue to run higher through front-month expiration, at the close on Friday, April 15.

This bullish bias is business as usual for SPLS option traders. During the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 42.47 calls for every put -- and the corresponding call/put volume ratio ranks in the high 81st percentile of its annual range.

As alluded to, Staples, Inc. is breaking out at midday. At last check, the shares have surged 8.9% to trade at $10.95, and are on track to finish above their 120-day moving average for the first time since June.

Likewise, ODP has tacked on a cool 11.7% to trade at $7.08. The bullish gap has helped the stock clear its 200-day trendline for the first time since July. All in all, it's been a stupendous week for the shares, which have rallied 23% since last Friday's close.

Meanwhile, ODP calls are changing hands at qraduple the usual intraday pace. Buy-to-open activity is detected at the in-the-money May 5 call. By purchasing these positions at a volume-weighted average price (VWAP) of $2.55, traders foresee ODP toppling breakeven at $7.55 (strike plus VWAP) by the time the back-month options expire, at the close on Friday, May 20.

Taking a step back, traders have long preferred Office Depot Inc calls over puts. The stock's 50-day ISE/CBOE/PHLX call/put volume ratio checks in at a top-heavy 9.38, and outstrips 87% of all other comparable readings taken in the past year. Likewise, ODP's Schaeffer's put/call open interest ratio (SOIR) of 0.28 rests in the bottom quartile of its annual range.

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