Mike Khouw Sees Unusual Options Activity In Gap

On CNBC's Options Action, Mike Khouw said that put options volume in Gap Inc GPS on Wednesday was 5 times higher than its average put options volume.

During the trading session he noticed that a trader sold 30,000 contracts of the October 20 puts for $0.20. Khouw explained that the trader is willing to purchase 3 million shares, worth $60 million, at a 10 percent discount from the current market price. He added that this quantity would make the trader a top 30 shareholder.

If the stock stays above $20 at the October expiration, the trader is going to collect a total premium of $600.000. The trade starts to lose money below $19.80 or 10.24 percent lower than the closing price on Wednesday.