OptionMonster's Heat Seeker system detected heavy call volume in both companies Tuesday. It began with the December 15 calls in SPLS for 20 cents with about 6,000 trading when we sent the initial alert, but volume soon climbed toward 17,500. Premiums would also double to 50 cents.
That kind of leverage on a percentage basis results from the fact that calls lock in the price where a stock can be purchased. Their cheap cost makes them safer than owning shares because only a limited amount of capital is at risk.
Office Depot followed minutes later as traders rolled bullish positions from the April 7 calls to the April 8s, which were bought for 20 cents and 25 cents. Those contracts also shot higher and traded for 40 cents within two hours.
Staples rose 1.05% to $14.46, and Office Depot ended the session up 3.15% to $6.55. The two office-supply retailers have outperformed the S&P 500 by a wide margin in the last six months as investors bet on a stronger domestic economy.
Total option volume was more than 12 times greater than average in both names Tuesday, with calls outnumbering puts by a wide margin.
-- Written by David Russell of OptionMonster
Russell has no positions in SPLS or ODP.