Friday, February 2, 2007


Rack dropped another 19% after its earnings report today and looks like a possible IV drop play setting up for a credit spread play.

The only question is will buyers step in here or will weakness continue? I'm considering selling the 15/17.5 calls for a net credit of $1.50 for a 1.5 reward/risk ratio with IV levels at around 59/55% respectively.

If we get some rebounding I might also add the 17.50/15 put spread for a hedge play against the upside.

Will reverse psychology prevail against discount buyers on poor old RACK? Stay tuned...

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