Kate Spade & Company (KATE) recently reported earnings, and news of contracting profit margins sent shares tumbling over 10 percent.
Unusual Options Activity
At least one institution thinks this move was overdone. Monday’s session saw a trader come in and buy 5,000 KATE Sep 33 Calls for $0.95, paying the ask against 700 contracts of open interest.
Huge Position
This order has the potential to control half a million shares of stock, or about a fifth of KATE stock’s average daily volume. With a total outlay of $475,000 in long premium, this order represents one of the bigger ‘unusual’ options activity trades of the past few weeks. Order flow has been relatively thin, with many senior Wall Streeters headed out on vacation through the Labor Day holiday.
Bottom Line
This order represents extremely strong conviction, with the calls being bought on day where KATE shares were up 3%. The Sep 33 Calls closed the day at $1.05. For this trade to be profitable at expiration, KATE must be trading above $33.95 at September expiration.
