OptionMonster's tracking systems detected the purchase of more than 8,000 July 18 calls, with all the volume hitting in the final half-hour of trading. The initial blocks priced for 15 cents, but premiums rose along with the stock and quickly doubled to 35 cents. There was barely any open interest before those trades occurred, which indicates new money was put to work.
These long calls lock in the price where investors can buy shares in the retailer, which lets them cheaply control a rally. The contracts can also generate significant leverage if shares move in the right direction, but they will expire worthless if shares are below $18 in mid-July.
Chico's rose 0.3% to $16.45 Tuesday and is up 6% in the last month. The stock fell to its lowest level in almost two years in late May, rebounded, and then gapped higher on June 10 after the Financial Times reported that management had been approached by potential acquirers.
The next quarterly report is scheduled for Aug. 27, after the July calls expire, so the buyer is looking for a rally independent of earnings.
Total option volume was eight times greater than average, with overall calls outnumbering puts by a bullish 20-to-1 ratio.
Russell has no positions in CHS.