MorningWord 12/11/14: You Down With $ODP?, $SPLS

by Dan December 11, 2014 9:35 am • Commentary

For the last few days we have highlighted what has appeared to be aggressive accumulation in Staples (SPLS) calls. From our Notable Options posts this week:


1. SPLS – for the third consecutive day the stock saw unusually large call activity, with today trading 10x the average daily volume with 156,o00 calls to 18,000 puts.  When the stock was $14.72 a trader bought 58,000 June 16 calls to open vs selling almost 4 million shares of stock.  This could have been a stock replacement trade, but also very likely a straight volatility play. It’s impossible to know.


1. SPLS – for the second consecutive trading day, options volume ran hot in SPLS at more than 3x avg daily volume with the majority of the trading taking place in calls.  When the stock was $14,32 a trader rolled a bullish view out, selling 15,000 Jan 15 calls at .35 to close and buying 20,000 June 15 calls to open for 1.10 making the break-even on this trade at $16.10 (basically at the 52 week high, marked in red below.) As we noted in yesterday’s post, Friday saw accumulation of March and June calls (SPLS – Call volume ran 3x average daily with a buyer of 15,000 March 15 calls for .60 to open, and buyer of the June 15 calls, 18,000 bought to open for .95 to open).

SPLS 2yr chart from Bloomberg

Last Friday:

6. SPLS – Call volume ran 3x average daily with a buyer of 15,000 March 15 calls for .60 to open, and buyer of the June 15 calls, 18,000 bought to open for .95 to open.

This Wednesday’s post on SPLS competitor, Office Depot (ODP):

1. ODP – Options volume exploded today doubling the entire existing open interest of 115,00 contracts coming into the day, with nearly all the activity in calls.  The most active strike was the Jan 8 calll where 67,000 traded on the day, with 40,000 bought to open for .175 when the stock was $6.70.  There was also a purchase of 20,000 the July 7/8 call stupid, which means that a trader bought both strikes equaling 2.05 in premium when the stock was $6.89.

And then this news hits the wires today, Per Bloomberg:

Starboard Value Takes 5.1% Stake in Staples, 9.9% Stake in ODP

Increases Office Depot stake to 9.9%, including options, from 8.6% on Sept. 10; says shares undervalued
NOTE: Late yday, WSJ said Starboard took ~6% stake in SPLS, boosted ODP stake to ~10%, citing people familiar; said moves may increase pressure on companies to merge;

So here was a clear example where an activist built their stake in the equity, added considerable leverage with options, and then leaked their trade to the media.  SPLS is now trading above $16 , which if holds would be a new 52 week high. Exactly one year ago today was the closing high of $16.18.

This is not exactly the sort of story I would want to chase as both companies are expected to see continued sales decline and for now flat eps growth despite consolidation (ODP and Officemax merged last year).  Who knows if regulators would even allow a merger, and let’s be honest, Amazon is eating both company’s lunch. Perhaps Amazon as a competitor is what allows regulators to wave through these sort of brick and mortar mergers.