Schaeffer's Options 101: Call Buying Ahead of Earnings

CINCINNATI--(Business Wire)--
Yesterday, we launched a new column, Options 101, to introduce readers to the
basics of options trading. This series is designed for newcomers to the options
world, although we hope options veterans can learn something from it, too.
Options 101 will explain fundamental concepts and terminology, along with risks
and rewards. Readers will learn about the pros and cons of options trading, and
how traders can leverage relatively small amounts of money into real profits.
But Options 101 will not be just a sterile classroom, without any application to
the real world. Very quickly, we will put these basic concepts to work,
analyzing actual activity in that day's markets.

In the column's debut yesterday, we touched on one of the most basic - and most
utilized - options-trading strategies out there: call buying. In today's lesson,
we're going to make this concept even more tangible by exploring an actual stock
with heavy call volume of late. More specifically, we're going to analyze the
recent options activity surrounding The Gap Inc. (NYSE: GPS), which has been a
favorite target among bullish bettors.

In fact, in afternoon trading, the San Francisco-based retailer has already seen
roughly 16,500 calls change hands today, more than 15 times its average intraday
volume of fewer than 1,100 contracts. The preference for GPS calls mimics the
recent trend on the International Securities Exchange (ISE); during the past
couple of weeks, speculators on the ISE have bought to open nearly 3 times as
many calls than puts on GPS. What's more, this lofty 10-day call/put volume
ratio of 2.76 registers in the 70th annual percentile, indicating that traders
on the ISE have scooped up GPS calls at a faster pace only 30% of the time
during the past year.

To continue reading this article, click here:
http://www.schaeffersresearch.com/commentary/content/options+101+call+buying+ahead+of+earnings/observations.aspx?click=home&ID=92284&source=businesswire

Schaeffer's Investment Research
Andrea Kramer, 513-589-3800
akramer@sir-inc.com

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