RadioShack (RSH) surged Thursday after an options trader bet big on the distressed consumer electronics retailer, buying around 20,000 Oct 14 calls at a strike of 1.5. The stock reached a high, up more than 30% on the day, of $1.75 before leveling off to $1.52 as of this writing. RSH has traded in a 52-week range of $1.12-$4.36.
RadioShack has recently fallen on hard times down almost 42 percent on the year and the word bankruptcy isn’t far from mind. Perhaps this is making it more difficult for the retail chain to turn things around; its creditors vetoed a cost cutting plan that would have closed as many as 1,100 store locations, possibly bracing for default.
However, depending on your risk profile, this sets up nicely for a short-term long position in the company as CEO Joe Magnacca fights to bring it back. While the downside of this trade setup is very real, the reward is potentially very handsome and can be bought at a discount.
The Trade: Buy the RSH Jan 2015 1.5 Calls for $.42
Risk: $42 per 1 lot
Targets: $.50, $.60, $.75 and $.90
Greeks of this Trade:
Delta: Long
Gamma: Long
Theta: Short
Vega: Long
This article was written by Kyle Sheahan, an Associate at Keeneonthemarket.com.
e: Kyle@Keeneonthemarket.com