How one trader is playing New Oriental

By David Russell,

Shutterstock photo

Put activity surged in New Oriental Education & Technology today, but the activity apparently isn't bearish.

Some 2,800 January 22.50 puts were bought in the Chinese company, which runs English-language schools on the mainland. Most of the contracts priced for $2.10 to $2.20, and volume was more than 20 times open interest in the strike.

A large number of shares were bought at the same time, so there are two possible explanations for the trade. One is that the investor likes EDU and is using the puts to hedge a long position in the name. Alternatively, he or she may be implementing a delta-neutral trade. (See our Education section)

That strategy is intended to profit from higher option premiums because owning both shares and puts makes them directionally neutral. Their hope is that implied volatility will rise, which will increase the value of the puts on a relative basis.

EDU is down 1.09 percent to $26.22 in early afternoon trading. The shares have been grinding in a range for the last 1-1/2 years.

Today's activity pushed total option volume in the name to more than 30 times greater than average.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: EDU

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