How bears are playing Tempur-Pedic

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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.

TPX 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 Education section)

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 lower since.

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)




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: TPX

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