RadioShack Jumps as Much as 33% as Trader Buys Call Options

May 29, 2014 5:30 pm ET

(Closes stock trading throughout.)

May 29 (Bloomberg) -- RadioShack Corp., the struggling electronics retailer, jumped as much as 33 percent after a trader spent more than $600,000 buying bullish options.

About 20,000 calls expiring in October with a strike price of $1.50 were purchased at 10:25 a.m., according to Trade Alert LLC. The stock then surged, reaching $1.75 a share in the biggest intraday advance since at least 1980. The shares finished up 9.9 percent at $1.45.

“Somebody’s taking a big bullish bet on the stock,” said Alex Panagiotidis, managing director for equity derivatives at Sterne Agee & Leach Inc., a Birmingham, Alabama-based brokerage firm. “This trade helped push the stock higher.”

RadioShack has struggled with slow sales and a lender dispute, which has hampered efforts to close underperforming stores. After saying in March that it would shut as many as 1,100 locations, the company said this month that it would only be able to close a smaller number because it couldn’t get consent from creditors.

The stock is down 44 percent this year. The company said in March that its fourth-quarter net loss widened to $191.4 million, marking the eighth consecutive quarterly deficit. Sales at stores open at least a year sank 19 percent in the period.

Merianne Roth, a spokeswoman for Fort Worth, Texas-based RadioShack, declined to comment on the stock.

RadioShack’s $1.50 October calls were the most-traded options today, according to data compiled by Bloomberg. The contract jumped 7 cents to 32 cents and has risen 146 percent since May 22.

Short Sales

The rally may have forced short sellers to close bearish positions and purchase the stock, said Mark Neuman, managing director of derivatives trading at JonesTrading Institutional Services LLC in New York. About 22 percent of the shares have been borrowed and sold to speculate on future losses, according to data compiled by Markit Ltd.

There was “a huge technical level at $1.50, which had been the lid on RSH for the past month,” Neuman said in an interview. “Once that got taken, the stock ran right up.”

RadioShack is scheduled to hold its annual shareholder meeting on June 3 and announce quarterly results seven days later. The retailer will probably say that its first-quarter loss widened to 49 cents a share from 35 cents a year earlier, analyst estimates compiled by Bloomberg show. The options market is implying a one-day move of 22 percent after the report.

--With assistance from Lu Wang in New York.