Options: Call-Selling in Fred's

By Jud Pyle, CFA, chief investment strategist for the Options News Network

Today, we saw some significant upside call selling in shares of retailer Fred's(FRED Quote). Looking at the Aug. 15 calls, we see that 12,000 have traded in the first four hours of trading. One investor sold these calls for an average price of 42.5 cents. The current open interest in these calls is just 202.

No significant news was reported today in Fred's. The shares are currently up more than 5% to $10.94. Shares of other retailers are generally all stronger across the board today. There is not one strong headline that is driving the whole group, but rather the combination of a strong report on housing starts, accompanied by the Redbook and International Council of Shopping centers reports on retail store sales.

So what can we say about this type of action in the calls? Note that the $15 strike is more than 37% out of the money. This could very well be a long holder who is taking advantage of elevated premium levels to earn some income. In exchange, the investor is willing to let his shares go up 37%. The 52-week high in Fred's is $15.91, touched back on Sept. 19. ...