IB Options Brief: Office Depot, Inc. (ODP)

Posted February 28th, 2012 by Caitlin Duffy in Unusual Activity

ODP ñ Office Depot, Inc.
The Boca Raton, Florida-based office supplies retailerís fourth-quarter earnings report topped analyst estimates and sent shares in ODP flying to the upside. Shares are now at a six-month high, and the largest trade in ODP options this morning suggests the stock has made its move for now, and will likely remain range-bound over the next couple of months. Office Depotís shares are currently up 15.9% at $3.50 as of 11:35 a.m. in New York.

It looks like the options player sold a 2,500-lot straddle at the April $3.5 strike to pocket total premium of $0.60 per contract. The trader walks away with the full amount of premium at expiration as long as shares in Office Depot settle at $3.50. Premium received on the straddle acts as a buffer against potential losses on the position given limited fluctuations in the price of the underlying away from the $3.50 level.

However, the trader could realize losses in the event that Office Depotís shares rally above the upper breakeven price at $4.10 or slip beneath the lower breakeven point of $2.90, at April expiration. Shares in ODP have enjoyed a monster rally in 2012, up better than 60.0% year-to-date. The straddle-strategist may keep some if not all of the premium enjoyed on the transaction as long as the stock can hang onto the 2012 gains.

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