By Mike Yamamoto of OptionMonster
NEW YORK -- Call buying heated up in Vera Bradley (VRA) on Monday, with traders looking to bag a rally in the heavily shorted retailer.
OptionMonster's tracking systems detected the sale of 2,000 November 20 calls for $1.35 and the purchase of December 22.50 calls for $1.05. Volume was below open interest in the November strike, indicating that a long position was closed and rolled to December.
Calls lock in the price where shares can be bought, letting investors cheaply position for a rally and generate leverage if one occurs. But the options will expire worthless if the stock remains below the strike price.
In Monday's case, the trader appears to be exiting a winning bet on the November calls and rolling the position to a higher strike in the December contracts. He or she kept 30 cents in the process and now has an additional month to reap more potential profits.
Vera Bradley's shares rose 2.09% to $20.98 on Monday. The handbag retailer plummeted to an all-time low of $17.27 on Sept. 12 after its last quarterly report, when it beat earnings and revenue estimates but lowered guidance. It bounced back up to the $20 level the next day and has been trapped in an extremely tight range since.
Short interest represented a hefty 89% of the float at the end of last month, which could accelerate buying in the name if it continues higher. Total option volume in the name was seven times its daily average for the last month, with overall calls outnumbering puts by a highly bullish 198-to-1 ratio.
Monday also saw December 35 call buying in women's apparel company Ann.
Yamamoto has no positions in VRA.