$GPS shopping spree pays off for bulls

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The market appears pleased with The Gap’s new turnaround strategy, and upside option positions are reaping the rewards.

On Tuesday, Investitute’s market scanners showed that 1,500 Weekly $24 calls expiring tomorrow were purchased for $0.51 to $0.61 with shares at $24.46. Volume was well above the strike’s open interest of 466 contracts, indicating that this was fresh buying.

Those calls traded as high as $1.99 this afternoon, more than tripling in value less than three days later. The stock was up les than 6.3 percent at the same time, illustrating the kind of leverage that can be achieved through options.

Long calls lock in the price where the stock can be purchased, gaining with a rally and providing leverage to the underlying shares. The contracts can quickly lose value if the stock stalls or pulls back but also carry less risk than owning the shares themselves.

GPS rose 0.35 percent to $25.91 today. The retailer rallied 7.45 percent yesterday after announcing that it would close 200 Gap and Banana Republic stores while shifting focus to its Old Navy and Athleta brands.

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Mike Yamamoto

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