Education Management gets collared

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One investor wants to protect a position in Education Management.

optionMONSTER's Depth Charge monitoring system detected the purchase of 2,500 January 20 puts for $1.40 and the sale of an equal number of January 22.50 calls for $0.85. There was barely any open interest in either strike before the trades occurred.

The investor probably owns shares in the operator of for-profit colleges but is worried about a drop. He or she paid $0.55 to open the trade and will make money if the stock falls below $19.15. The trader is also agreeing to sell EDMC if it rallies above $22.50 by expiration.

Known as a collar , the strategy is a common hedging technique that protects against a selloff. Given that EDMC came into the session up more than 50 percent since Oct. 1, the trader probably wants to protect gains without being forced to dump the stock now.

EDMC is down 4.17 percent $22.06. Overall option volume is 6 times greater than average so far today, according to the Depth Charge.



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: EDMC

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