Gymboree Gets Straddled

Children’s clothing retailer, Gymboree (NASDAQ: GYMB), recently announced that Q4 earnings would come in better than expected and the stock jumped hard after that, gapping from $46 to $51. The stock has begun to move sideways from there and one trader is taking advantage of that to sell volatility in the name and voice a range-bound opinion on the stock.

The May $50 straddle (which involves selling a call and a put with the same month and strike) was sold for $5.95 2,500 times. This action was above open interest. The trader will make varying levels of profit it the stock stays within the range of $44.05-55.95, though will be exposed to losses if the stock moves outside of that range. The full net credit will be kept if the stock hovers very near $50.

This trade will also profit from volatility levels coming in in the name. Current implied vol is at 34% and historical at 26%; the volatility of the straddle is very near 34% making this a pure play on selling vol.

I like this trade and am selling the May $50 straddle for $5.85