TRW Automotive has pulled back after a blistering run, and now
one investor is using a complex strategy in hope of more upside.
optionMONSTER's Heat Seeker tracking system detected the purchase
of 7,000 July 50 calls for $2.55 and the sale of 7,000 July 35 puts
for $1.05. A block of 14,000 July 60 calls were also sold for
$0.40. The strategy combines elements of a ratio spread and bullish
combination to boost leverage. (See our
The trade resulted in a cost of $0.70 and has the potential to earn
a maximum profit of 1,329 percent if TRW closes at $60 on
expiration. Gains will erode above that level and turn to losses
over $65. That's roughly the same price where the stock peaked
throughout the course of 2011, so the investor may expect
resistance around that level.
TRW fell 0.28 percent to $45.69 yesterday but is up more than 40
percent this year. The auto-parts maker has beaten estimates the
last three times it reported earnings amid increased vehicle
The stock has been falling for the last two weeks, which could be
leading some traders to believe that it is now attractive on the
pullback. Yesterday's complicated trade also obligates the investor
to buy TRW shares for $35 if they fall to that level. The trader
might be willing to do that, given that he or she is already
bullish on the stock.
Overall option volume was 18 times greater than average in TRW in
the session, according to the Heat Seeker.
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