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Trade Idea #547
FOR EDUCATIONAL PURPOSES ONLY - DISCLAIMER BELOW
July 6th, 2022
Trade Idea: CLAR $19.82 (Clarus Corp Inc.)
Buy November 18th $20 Calls $4.20
Sell August 19th $25 Calls $1.00
Clarus Corp (CLAR) designs, manufactures, and distributes outdoor equipment and lifestyle products. Apparently, they have a management team that is very good at acquiring and developing brands. CLAR Management uses a roll-up strategy to grow their company, which has been successful to-date.
Like all retail right now, the company appears somewhat “cheap.”
However, if management can continue to be successful with the "Buy & Grow" strategy then it’s really cheap. And has the potential to explode higher.
Now, CLAR is only a $750 million company that no one has heard about. But someone is paying attention!
Over the last month, I’ve seen the accumulation of over 86,000 options come into the market. On a notional value, that’s $180 million… or 24% of the company in options.
This would trump the Top 3 holders combined.
This is the CLAR Open Interest board below. You can clearly see where the big volume has come in.
Now, let me show you the detail of how we got here…
December $22.50 Calls
This buyer had already started accumulating Calls in early June. There is 12,000 Open Interest when he started getting bigger in size:
- June 13th : Buy 5,000 December 16th $22.50 Calls $2.05 … ($18.39)
- June 14th : Buy 7,000 December 16th $22.50 Calls $1.90 … ($18.09)
- June 21st : Buy 8,000 December 16th $22.50- $30 Call Sprds $1.54 … ($17.79)
November $20 Calls
With the stock lower, he starts buying November options:
- June 21st : Buy 8,000 November 18th $20 -$25 Call Sprds $1.55 … ($17.79)
December $20 Calls
And continues adding to December Call Spreads that day and over the next week:
- June 21st : Buy 10,000 December 16th $20 -$25 Call Sprds $1.60 … ($18.11)
- June 22nd : Buy 25,000 December 16th $20 -$30 Call Sprds $2.61 … ($18.85)
- June 27th : Buy 7,000 December 16th $20 -$25 Call Sprds $1.88 … ($19.13)
- June 28th : Buy 6,000 December 16th $20 -30 Call Sprds $2.73 … ($18.81)
However, by the end of the week our buyer decides that he does not want to be short the $25 Calls.
He buys back to close 17,000 December 16th $25 Calls on the 28th and 29th.
And he buys back to close 8,000 November 18th $25 Calls on the 27th
February $20 Calls
As the stock creeps higher, he wanted a little more time and rolled out his Call Spreads from December to February. Notice that he doesn’t want to be short any of the December $30 Calls anymore and starts to buy them back.
- June 30th : Buy 15,000 February 17th $20 -$30 Call Sprds $2.95 … ($18.89)
- June 30th : Sell to Close 15,000 December 16th $20 -$30 Call Sprds $2.30 … ($18.89)
- June 30th : Buy to Close 15,000 December 16th $30 Calls $1.40 … ($18.89)
December $30 to $40 Calls & February $30 Calls
On Tuesday, this person no longer wanted to be short the upside $30 Calls. He wanted more room, so he bought them back and sold only the December $40 Calls:
- July 5th : Buy to Close 7,500 December 16th $30 Call $1.65 … ($19.58)
- July 5th : Buy to Close 15,000 February 17th $30 Calls $2.00 … ($19.58)
- July 5th : Sell 22,500 December 16th $40 Calls $0.40 … ($19.58)
Clearly, there is a big buyer in the name here who will likely have to file at some point.
In addition, I looked at the sec.gov files and also saw that the Chairman Warren Kanders owns 20% of the company. So, most of the company is owned by institutions and insiders.
Earnings are due in the first week of August.
With another earnings due in November, this trade should get us a very good look at the name:
Buy 1 CLAR November 18th $20 Calls $4.30
Sell 1 CALR August 19th $25 Calls $1.00
Net Premium is $3.30.
Using the actions by our buyer, the Target Stock Price is $32-$35.00. Also, because he is buying time it does not appear like there is something imminent happening in the next 4 weeks (besides earnings) that will move the stock 30% higher.
If CLAR explodes >$25 in the next 4 weeks, we will make about 50-75%.
If not, we are in the CLAR November $20 Calls at a great price right behind this huge buyer.
*** 7/27th Note: The CLAR November Calls are now $3.20 by themselves without having to sell the August $25 Calls. In addition, this buyer has rolled down most of his strikes to the CLAR December $15 Calls and the $17.50 Calls. Getting bigger and committing more capital.
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