M&A Buzz Drives Options Trading on Staples, Kate Spade Stocks

Call traders are placing bets on Staples stock and Kate Spade stock amid a slew of M&A reports

Apr 4, 2017 at 11:37 AM
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Shares of Staples stock and Kate Spade stock are making drastically different moves today on M&A developments. For instance, Staples was last seen trading 10.9% higher at $9.60, thanks to reports the retailer is talking with private-equity firms about selling itself. Meanwhile, shares of KATE are down 14.6% at $19.47, earning a spot on the short-sale restricted list, due to reports the company wants more time to consider a buyout offer from Coach. In the meantime, options volume is blowing up on shares of SPLS and KATE. 

SPLS Options Traders Eye Double Digits

At last check, nearly 18,500 SPLS calls had traded, 18 times the expected intraday pace, with volume on track to hit an annual high. In fact, calls account for the 10 most popular contracts today. Most active is the June 10 call, followed by the weekly 4/7 8.50-strike call and the April 8 call. Buy-to-open activity seems likely at all three strikes, meaning traders are betting heavily on extended upside for SPLS stock. 

This activity is a dramatic change of pace for SPLS options traders. For instance, the retail stock has a 10-day put/call volume ratio of 2.72 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). Not only does this suggest put buying has nearly tripled call buying during the past two weeks, but this ratio ranks just 1 percentage point from a 52-week high. This means options traders have been unusually bearish in recent weeks. 

Of course, Staples is no stranger to the M&A scene. SPLS stock sold off last May after the company pulled its buyout offer for Office Depot. Interestingly, the shares topped out at exactly $10 earlier, which was also home to their highs from November and December. 

KATE Options Trader Bets On a Big Breakout

KATE options are trading at nine times the normal intraday rate, with roughly 27,000 contracts on the tape. Receiving notable attention is the July 23 call, thanks to one trader who may have bought to open 1,800 contracts for 70 cents each. This would mean the trader bet $126,000 (premium paid * number of contracts * 100 shares per contract) on KATE stock eclipsing $23.70 (strike plus premium paid) -- possibly in anticipation of a buyout offer above this level. Elsewhere, the April 18 and May 17 puts are most active, but appear to be tied to stock.

More broadly, KATE options traders have been targeting calls over puts for several weeks. In fact, nearly seven calls have been purchased for every put during the past 10 weeks at the ISE, CBOE, and PHLX, based on its call/put volume ratio of 6.60 -- in the slightly elevated 62nd annual percentile. Still, today's developments have KATE stock back to levels not seen since M&A buzz began swirling around Kate Spade in late February. 

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