Options Flow Case Study: Yea BEBE! Bebe Stores Jumps 33% in 5 Days

Understanding where options traders are positioned into key events, such as earnings, always gives you an edge up on figuring out the directional bias.

With options activity I look at two types that are important. You have the "High Impact" trades, which are clear signs of Institutional positioning in the options markets, large lots of contracts and flow into a specific strike or spread.

However, I have often found more value in studying how unusual options action is, not always necessarily a giant block of contracts, but an anomaly. The reasoning behind this is that you can not expect to be an expert on every stock, and certain individuals, not just institutions, have better information into events regarding specific companies than you do, and they will position accordingly. Whether this is from insider information, or due diligence with channel checks and such, that is not important, just the outcome is.

Such was the case with Bebe Stores (BEBE), a much maligned retailer that has not done much good for the last few years. On June 2nd, more than 2,000 September $7 calls were bought to open at $0.30, pushing Implied Vol. higher, and running at a rate of more than 10X the average day in call volume for BEBE. Wedbush had raised shares to Outperform on May 5th with an $8 target. I noted the action live that day, as I always do, to my subscribers in the chat room, but that was not the only chance here. Seeing that same store sales were set to be announced, I noted on Wednesday to clients that Bebe Stores (BEBE) shares were acting strong, and still had more than 3,000 September $7 calls in open interest sitting out there, so there was a bullish bias for shares in the options, and the Sep. 7 calls were still trading at that $0.30 price.

Bebe Stores (BEBE) shares jumped more than 15% yesterday after reporting results, and most of the call buyers are sitting with more than a 200% gain.

Knowing how options players are positioned can set you up for quick gains, and although not 100% accurate, which is impossible to expect, it will give you a leg up and point you in the right direction. It also puts you onto the trail of stocks you normally would not give a second look to. I never would have thought twice about BEBE if I had not remembered the unusual call buying just 1 month earlier.