Office Depot draws bullish plays
Traders are looking for Office Depot to reach new highs in the next six weeks amid persistent speculation of a possible deal with rival Staples.
About 6,000 October 6 calls were bought for $0.15 to $0.25 yesterday, according to optionMONSTER's Heat Seeker tracking program. The volume was nearly double the strike's previous open interest, indicating that new positions were established.
These long calls lock in the price where the stock can be purchased through mid-October no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, providing potentially significant leverage, but the contracts will expire worthless if shares remain below $6. (See our Education section)
ODP gained 2.94 percent to close at $5.60 yesterday. The office-supply retailer hasn't closed above $6 since February 2011.
Office Depot has risen sharply this week along with shares of Staples after Credit Suisse addressed the prospects of a merger in a note on Tuesday. SPLS saw bullish activity of its own in January calls that day.
Total option volume in ODP topped 11,000 yesterday, nearly 5 times its daily average for the last month. Overall calls outnumbered puts by 3 to 1.
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