Annaly Capital Management (NYSE: NLY) put buyer calls for near-term downside


Annaly Capital Management (NYSE: NLY ) shares are relatively unchanged on the day Wednesday, but at least one investor traded a hefty number of puts on a bet that the stock could drop closer, or maybe dip all the way to its 52-week low throughout the next month.

NLY is currently trading up roughly five cents to $16 without any news from the company today. The stock has recovered since its worse-than-expected earnings announcement on May 3 (the company announced 62 cents a share, missing estimates by 10 cents), but options action during afternoon trading suggests at least one investor is calling for the stock to pull back throughout the near term.

By 1:40 p.m. EST, more than 21,000 out-of-the-money ( OTM ) June 14-strike puts changed hands for an average price of 14 cents per contract. These puts are home to current open interest of 1,500 contracts, which indicates investors most likely traded the options to open. The options are currently trading up four cents, despite the stock rallying slightly as well. That is a good indication of how a put buyer can cause implied volatility to rise, since puts should not rise when stocks rise, unless implied vol rises. The OTM June 14 puts have an implied volatility of 37% compared to the stock's 30-day historical volatility of 29%. If NLY shares are trading lower than the breakeven price of $13.86 when June options expire, put buyers could make significant but limited gains if the stock moves closer to zero. If the stock remains at its current level or higher than the breakeven, the maximum loss on this long put trade is the premium paid, or 14 cents per contract.

For a visual of the risk/reward of this long put strategy, open a free virtual trading account . I use my account each day to assess profit and loss territories of stock and option trades I see cross the tape.

It's interesting we're seeing heavy put-buying action during today's session following significant put selling action covered on May 7. On that day, amid the selling on Wall Street, someone sold the October 15 puts for $1.25. Those puts have now dropped below $1.10. It is possible that today's put buyer was the same seller as on Friday, and is protecting some of the risk from that put sale.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ, Inc.

This article appears in: Investing , Options

Referenced Stocks: NLY , OTM

Jud Pyle

Jud Pyle

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