IB Options Brief: Gap, Inc. (GPS)

Posted April 2nd, 2012 by Caitlin Duffy in Unusual Activity

Call Spread Predicts Continued Gains In Store For Gap

GPS ñ Gap, Inc.
The operator of retail chains Gap, Banana Republic and Old Navy popped up on our market scanners after a large bullish spread was initiated in the May expiry. Shares in Gap are up 2.15% at $26.70 today on the heels of an upgrade to ëAbove Averageí with a target price of $32.00 at Caris & Co. Gapís shares rallied sharply in the first quarter ñ currently up 44.5% since the start of 2012 ñ and it looks like one trader employed a sizable debit call spread to position for the up-trend to continue in the near term.

The trader appears to have purchased 6,500 calls at the May $28 strike for a premium of $0.58 each, and sold the same number of calls up at the May $30 strike at a premium of $0.17 apiece. Net premium paid to initiate the spread amounts to $0.41 per contract, thus positioning the strategist to profit at expiration as long as shares in Gap rally another 6.4% to top the breakeven point at $28.41.

Maximum potential profits of $1.59 per contract are available on the trade in the event that shares surge 12.4% to trade above $30.00 at May expiration. The Gap, Inc. is scheduled to report first-quarter earnings after the closing bell on May 17th.

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