Yes SIR, Buying Calls Sir

Select Income REIT (NYSE: SIR, $29.15, up $0.73) is a real estate investment trust owning 48 properties, including 11 leased land areas in Hawaii and 37 commercial properties across the mainland United States.  SIR stock has generally performed well, and is up 30% from its March 2012 IPO price.

Earlier today with SIR trading below $28.95, we saw a trader come in and buy 3,000 SIR Aug 30 Calls for $0.90, an order that was 692 times usual volume (‘usual volume’ is based on the 22-day moving average of all option volume in the underlying). This traders $270,000 investment will be profitable if SIR is trading above $30.90 at August expiration (8/15).  With 168 days remaining until expiration, time is on this traders side as the stock needs to move less than 7% for these calls to be profitable.

With open interest of only 100 contracts or so, volatility spiked after this order hit the tape and the calls moved to $1.00-$1.05.  SIR has already traded 480,000 shares as we pass the midway point of the Friday session (over 700,000 shares by the end of the day), compared to its 3-month average float of 180,000 shares. With the potential to control 300,000 shares, this order has likely driven the stock higher as the market maker(s) short these calls will have to buy stock to hedge their position.