ArvinMeritor faces range-bound play

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ArvinMeritor has been moving sideways since April, and one trader is looking to make money from that range.

ARM optionMONSTER's tracking systems detected the sale of about 5,400 contracts each in the November 15 calls and the November 14 puts, which priced for $1.12 and $0.85-0.88, respectively. Volume was more than 4 times open interest in both strikes.

The strategy, known as a short strangle, collects about $1.98 of premium. The trader will get to keep that amount if ARM closes between $14 and $15 on expiration but will make some money anywhere between about $12 and $17, thanks to the credit received. (See our Education section)

The auto-parts maker fell 0.27 percent to $14.86 yesterday and is little-changed over the last five months. The sideways movement followed a rally of more than 3,000 percent off the March 2009 lows.

Other companies in the sector such as Dana Holding and Ford Motor that also traded at distressed levels and had similar runs, have also been consolidating since the spring.

The strangle trade on ARM pushed total options volume in the stock to 9 times greater than average.

(Chart courtesy of tradeMONSTER)



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

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: ARM , DAN , F

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