Options Volume Explodes as Rent-A-Center Stock Spikes

Rent-A-Center rejected Vintage Capital Management's $15-per-share buyout offer

Jul 11, 2017 at 1:34 PM
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Shares of Rent-A-Center, Inc. (NASDAQ:RCII) have jumped 9.8% to trade at $12.19, after the furniture leasing company said it rejected a $15-per-share buyout bid from privately held Vintage Capital Management, calling the offer "inadequate and opportunistic." While stock volume has spiked to its highest perch since June 7, RCII options volume is running hot, too, and is on track to settle in the 100th annual percentile.

By the numbers, 11,434 puts and 16,938 calls have changed hands -- 20 times what's usually seen at this point in the day. Most active is the September 10 put, where it looks like options traders are buying to open new positions. If this is the case, the goal is for RCII to retreat to single digits over the next two months. Given today's big gains, this could also be indicative of an options hedging strategy by Rent-A-Center shareholders.

On the call side, the September 15 strike has seen the most action. It's possible speculators are selling to open positions here, betting on Vintage Capital's per-share buyout offer to serve as a short-term hurdle for the shares. 

Whatever the motive, the 10 strike has been popular on RCII. Specifically, the December and September 10 puts are home to the stock's top two open interest positions, with a collective 31,621 contracts currently outstanding.

On the charts, RCII stock has rebounded since hitting a 15-year low of $7.76 in late January. More recently, the shares ran into a familiar ceiling in the $13.20-$13.30 neighborhood in mid-June, but pulled back to their 80-day moving average and bounced.

And while a 35.6% decline in short interest between the April 15 and June 15 reporting periods probably helped push the stock higher over this time frame, it's likely a continued round of short covering is helping today's rally, too. Despite the recent drop in bearish bets, short interest still accounts for 38.2% of RCII stock's available float, or 8.6 times the average daily pace of trading.

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