Sports apparel chain Foot Locker (FL) has dropped nearly 40 percent over the past year. One trader is betting on a rebound in shares in the coming weeks.
That’s based on the December 15 $22.50 calls. With 31 days until expiration, 8,084 contracts traded compared to a prior open interest of 177, for a 46-fold rise in volume on the trade. The buyer of the calls paid $1.15 to make the bullish bet.
Shares recently traded for about $20.50, so they would need to rise $2.00, or just under 10 percent, for the option to move in-the-money. The strike price is well under Foot Locker’s 52-week high of $47.22.
At current prices, Foot Locker trades at 12 times earnings and about a 40 percent discount to book value.
If they can improve sales, shares should trend higher. In the current consumer spending environment, there may be a seasonal bounce. Given the company’s relatively high debt load, chances are any move higher will be short-lived.
Right now, shares look most poised for an oversold bounce rather than a sustainable move higher.
Action to take: Investors may like shares as an oversold rebound play here. The stock can likely see low-double-digit gains in the coming weeks from their oversold prices.
For traders, the December $22.50 calls could see mid-to-high double-digit gains.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.