Darden trade looks for big move


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At least one volatility trader bet on a big move in Darden Restaurants ahead of its earnings report yesterday after the bell.

optionMONSTER's tracking systems detected the purchase of about 4,000 January 50 puts for $1.70 to $2 and some 4,500 January 50 calls for $1.95 to $2. Volume was more than twice open interest in both strikes.

DRI The trades were scattered throughout the session, but many appear to be straddles, where investors buy calls and puts at the same strike. The strategy hopes for a pop or a drop so that one of the two options will make money.

The drawback of buying straddles is cost: The move higher or lower must be big enough to cover the expense of both contracts. (See our Education section)

The case of DRI may prove disappointing because fiscal second-quarter results matched forecasts, and management reaffirmed its full-year forecasts. The stock fell about 4 percent to $48.44 in extended trading after the news came out.

The straddle cost no less than $3.65 to implement, so DRI will have to make a bigger move--more than 7 percent--for the trade to turn a profit.

DRI gained 1.08 percent to $50.43 in the regular session, near an all-time high of $50.83. Overall option volume in the name was about 44 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 Nasdaq, Inc.

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This article appears in: Investing , Options

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