Casino game maker WMS Industries has been falling along with the
rest of the market since May, but one trader is positioning for a
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
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
(Chart courtesy of tradeMONSTER)
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