Volatility Soars Ahead of Dick's Sporting Goods Earnings
Volatility soared in Dick's Sporting Goods before today's earnings report, as the bulls are pricing in a pop higher.
OptionMonster's tracking systemsdetected unusual activity yesterday in the May 27.50 calls, which traded more than 6,000 times against open interest of 2,043 contracts. Most of the activity resulted from sales for $1.20 and $1.25 as traders earned premium from the huge demand for the options.
Implied volatility at the strike was a whopping 75 percent, compared with just 52 percent for the June 27.50 calls. That implies investors expect a big move when earnings come out this morning before the market opens.
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Dick's rose 1.21 percent to $28.48 after fighting its way higher in the final two hours of trading yesterday. The athletic-goods retailer slightly beat its numbers the last time it reported on March 9. Since then, good sales data led Citi to upgrade the shares and FBR Capital to raise estimates.
Just because people were selling calls isn't a bearish sign. They probably hedged the exposure by owning the stock, hoping to make out better by collecting income and betting the shares won't move the implied amount.
Yesterday's trades pushed total options volume in the name to eight times greater than average, with calls accounting for 90 percent of the activity.
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Jon 'DRJ' Najarian is a professional investor, CNBC contributor, and cofounder of OptionMonster.com.