The OptionsHouse Hotlist scans unusual option volume during the trading day. This tool is available to all OptionsHouse customers, including those with virtual trading accounts.
Omnicare, Inc. OCR is modestly higher today, keeping pace with the broader market. An enthusiastic spread trader expects considerable upside in the intermediate term, however, and traded this thesis by buying a large block of out-of-the-money bull call spreads today.
Just over an hour into the trading day, a large-scale investor bought nearly 5,000 of the March 25 calls and simultaneously sold 5,000 of the March 30 calls. The net debit for the spread was 63 cents each, or more than $300,000 in premium for this trade. These calls were traded to open, as open interest was minimal on both strikes heading into the trading day.
The most the investor can earn on this spread is $4.37 per spread (the difference in strikes less the premium paid). Maximum profit is achieved if OCR is trading above the 30 strike when the options expire in roughly 200 days. This would require a jump of more than 50% from the stock’s current level of $19.54.
The maximum loss, excluding commissions, is capped at the premium paid, or $0.63. Because this is a relatively aggressive play using out-of-the-money options, return on risk is high at 694%. Breakeven at expiration is $25.63, or 31% above OCR’s current price.
OCR shares have lost one-third of their value since mid-April and today’s investor may view it as an oversold name that is readying itself for a rally. Earlier this month, Briefing noted that company directors had recently purchased 12,000 OCR shares.
Another name on the Hotlist today is Saks SKS, which is up more than 22% as the takeover rumors fly! There is rampant speculation that the high-end retailer may be taken private for $11 a share, a 66% premium from last night’s close!
About 40,000 options have traded in Saks today, and more than two-thirds of these are on the put side! This compares to average daily volume of 3,000, though this number has increased a bit this month as the rumors began to swirl. The most-active option today is the September 9 put, with almost 9,000 contracts trading on open interest of 62.
Refer to this article for more information on Hotlist functionality.
Photo Credit: Marlith
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