Is Carmax stalled at key resistance level?

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One investor is positioning for downside in Carmax as the shares stall at long-term resistance.

optionMONSTER's Depth Charge tracking program detected the purchase of 2,110 July 30 puts for $0.85 and the sale of an equal number of July 25 puts for $0.23. Volume was more than quadruple open interest in both strikes.

The trade cost $0.62 and will earn a maximum profit of 706 percent if the automobile retailer closes at or below $25 on expiration. It's known as a bearish put spread because it leverages a move between two prices. See our Education Section for more.

KMX rose 0.14 percent to $35.03 in late morning trading. The stock is up 14 percent in the last month, and is now attempting to break the same $34-35 range that's been resistance since March 2011.  Its recent earnings reports have been mixed, but investors have favored the stock amid hopes of stronger consumer spending as the economy improves.

Today's downside strategy could be an outright bearish trade or a hedge on a long position in the shares. The next earnings report comes out before the bell Thursday, April 5.

Overall options volume in KMX is 6 times greater than average so far today, with puts outnumbering calls by more than 50 to 1.



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: KMX

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