Tempur-Pedic International is stalling after a big move last
month, and the bears are circling.
optionMONSTER's Depth Charge tracking system detected the purchase
of 4,000 March 47 puts, first for $4 and then for $4.10. There was
no open interest in the strike when the session began.
It's noteworthy that TPX was trading for $43.86 when the puts
crossed our monitors, so these were in-the-money contracts. The
strategy provides more immediate leverage to the mattress stock
than buying out-of-the-money options.
The puts have a delta of 0.74, meaning they will appreciate $0.74
for every $1 that TPX falls. And if the shares remain around their
current price, the puts will maintain most of their value. (See our
In contrast, contracts that are out of the money are less
sensitive to moves in the share price and stand to expire worthless
if the stock doesn't drop.
In-the-money trades often appear on thinly traded names because
their wide bid/ask spreads raise the cost of implementing vertical
spreads. (See this story on CNO Financial for more)
TPX is down 1.13 percent to $43.75 in afternoon trading. It
gapped higher on Jan. 21 after fourth-quarter results beat
estimates and management issued a rosy outlook for 2011. One week
later, they hit an all-time high of $44.95 but have been drifting
Overall option volume in the name is 4 times greater than average
so far today, with puts accounting for 99 percent of the activity.
(Chart courtesy of tradeMONSTER)
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