As Avon Products clings to a multi-year low, one bull is placing
a cautious bet.
optionMONSTER's Heat Seeker monitoring system detected the purchase
of 1,200 October 18 calls for $0.46. Equal-sized blocks were sold
in the October 14 puts for $0.75 and bought in the October 12 puts
for $0.29, resulting in a net cost of about zero.
The strategy earns income with a put credit spread and uses that
money to buy calls. It will earn infinite profits if the cosmetics
company rallies, and face a maximum loss of $2 if it drops to $12.
The stock hasn't traded below $14 since 2000, so they may consider
that risk small.
AVP is off 0.42 percent to $15.47 in afternoon trading. The company
has lost more than 40 percent of its value in the last year amid
chaos in the boardroom and as it struggles to defend market share.
Today's bullish trade is specially tailed for a company such as
AVP, which could rebound after such a big selloff. But, if the
situation worsens, it could have much more downside. (See our
section for more ways that calls and puts can be combined to create
positions that are safer than owning stock.)
The bullish trade accounted for almost all the options activity in
the name so far today.
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.
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