A Purr-fect Call Spread?

Hey Traders,

Another day, another meme stock …

This time, WallStreetBets netizens are targeting Petco Health and Wellness (Ticker: WOOF), boosting the stock in a big way to start the week.

So what’s up with WOOF? Are Reddit traders just that enthusiastic about kibble and cat bells?

Of course not.

WOOF is the latest speculative short-squeeze play.

Short squeezes are all the rage this year … I bet there’s traders out there who wouldn’t have been able to tell you what “selling short” was in 2020 who have made thousands off playing meme squeezes since January. I’ve never seen anything like it …

If you’re feeling a little behind the curve, or just want to know more about how regular ol’ traders can find these squeezes and play them (and win!) … great news!

Andrew Giovinazzi and I will be hosting a LIVE session this Thursday at 11 a.m.  EST, where we’ll give you the juice on short squeezes – what they are, how to play them, and we’ll even be finding a short squeeze trade LIVE!

Bookmark this link to join us Thursday at 11 am EST.

Now, back to the latest meme …

And the trader trying to cash in on this latest profit op-paw-tunity …

WOOF has found itself trending on Reddit over the last several days, and had a very nice start to the week, spiking higher on some big buying volume.

Chart courtesy of StockCharts

What gives?

Perhaps unsurprisingly, WOOF does seem to have higher-than-usual short interest, with over 30% of the stock’s float held short. There’s also big institutional interest in WOOF — both indicators that retail traders have been working to spot and latch onto as of late.

WOOF’s 30-day historical volatility (HV) is at the highest it’s been in a year, indicating the stock has seen more movement than usual over the last month — probably not unexpected with the added retail trading attention. By comparison, implied volatility (IV) is relatively muted (which isn’t saying much – IV is still in its 43rd percentile, so it’s not all that low), so while options aren’t “on sale,” the stock has been outperforming volatility expectations.

Looking at standard June expiration options – which expire this Friday – there’s been some big buying interest in the June 30-strike calls. On Tuesday, over 6,000 of these call contracts crossed the tape, and they have the highest open interest of WOOF’s June expiration options.

And for as many traders that have been buying them, there’s also one trader in particular who has also been happy to sell them …

Dog Caller

It would appear that this trader is relatively bullish on WOOF … just perhaps not quite as bullish as some of the other retail traders setting their sights on the pet store company.

This lukewarm bull put through a sizable bull call spread that crossed the line on Tuesday, opening 2,512 contracts of WOOF 25-strike calls for $1.20, and selling the same number of contracts in the 30-strike calls for $0.20.

Courtesy Trade-Alert

What this indicates to me is that there’s someone out there willing to put quite a bit of money on the line, betting that WOOF will be able to maintain (or, at this point, regain) at least some of this week’s meme-powered rally. 

However, this trade also indicates that this trader doesn’t seem to think the pet store stock will be able to make another significant run higher before June options expire this Friday … which, on the surface, seems reasonable, until you consider meme stocks are sometimes anything but reasonable.

While purchasing a call spread did reduce this trader’s dollars at risk – from $301,440 to $251,200 — it also could put them in a less-than-ideal situation if this Reddit rally really blows up before the week’s end. And given the heavy call buying at the June 30-strike … you never know.

Remember, we’re diving into what fuels meme stocks just like this on Thursday. Join us by clicking here at 11 am EST!

Your Only Option,

Mark Sebastian

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.