By David Russell
One big investor rolled forward a long position in Rent-A-Center (RCII), maintaining a bet the equipment-leasing company will break through $20 by early spring.
optionMONSTER’s tracking systems detected the purchase of about 1,200 March 20 calls for $0.95 and the sale of a matching number of February 20 calls for approximately $0.72, costing a net debit of $0.23. Volume was below open interest in the February calls and above open interest in the March contracts, indicating a long position in the former was replaced by the latter.
RCII rose 1.49 percent to $19.73 Tuesday and is up 6 percent in the last month. The stock gapped higher on Jan. 8 after getting upgraded to buy at Stifel Nicolaus, which cited valuation and an expectation of positive sales trends in the next earnings report.
The company plans to publish fourth-quarter results after the bell on Feb. 1. RCII cut about $288 million of debt in the first nine months of 2009, prompting Moody's to raise its credit rating to one notch below investment grade on Nov. 24.
Rolling forward the calls let the investor add another month of exposure to the stock for a low marginal cost. By performing the transaction now, he or she also avoided the quickening pace of time decay that will erode the value of the February calls as expiration approaches.
Overall options volume in RCII was 12 times greater than average in the session, and calls accounted for 95 percent of the activity.
(Chart courtesy of tradeMONSTER)