Bullish 3-way bet on WMS Industries

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Casino game maker WMS Industries has been falling along with the rest of the market since May, but one trader is positioning for a jackpot.

optionMONSTER's tracking systems detected the purchase of 1,000 January 45 calls for $5.10, matched against the sale of equal numbers of the January 55 calls for $1.50 and the January 40 puts for $2.60. The trade resulted in a net cost of $1 per call call contract owned.

WMS Chart The trade will mimic a long position in the shares and earn a maximum profit of 900 percent if WMS closes at or above $55 at expiration. It will also lose money below $40.

WMS fell 3 percent to $41.88 in morning trading and is down 13 percent in the last month. It's been falling along with other casino-related names, which have been punished as investors worry about consumer spending.

The three-way options trade is a highly leveraged strategy that uses the stock's rising implied volatility to finance the long position in the January 45 calls.

Given that the shares have been pushing lower and today broke through the 200-day moving average (purple line on chart), it may have been implemented by a short seller looking to hedge against a possible rally. If that's the case, it would be the mirror image of a collar trade that caps both an investor's profits and losses.

Overall options volume in WMS is 24 times greater than average so far today.

(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: WMS

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