Large bear goes shopping at Lowe's

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Lowe's is pausing after a big run, and one investor is nervous that it may drop.

optionMONSTER's Depth Charge monitoring system detected the purchase of 5,000 January 30 puts for $1.02 and the sale of an equal number of January 25 puts for $0.41. Volume was more than triple open interest at both strikes.

The trade cost $0.61 and will earn a maximum profit of 720 percent if the home-improvement retailer closes at below $25 on expiration. It's known as a bearish put spread because it leverages a move between two prices. (See our Education section)

LOW is up 1.06 percent to $39.11 in morning trading and is pausing at a slightly lower level than where it peaked in mid-February. That could make some traders believe that it may be running out of steam and at risk of a drop--especially after a gain of more than 50 percent since August. The last earnings report was also mixed, with results better than expected but guidance was weak.

Even if LOW doesn't drop all the way to $25, the put spread will make money to the downside. It may have been purchased by a shareholder looking to hedge a long position in the name.

Total option volume is still below average in the name, but puts outnumber calls by a bearish 21-to-1 ratio.



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: LOW

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