Masco facing range-bound strategy

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Masco has been running like a racehorse, and one trader apparently thinks that it needs to take a breather.

optionMONSTER's tracking programs detected the sale of 2,300 July 14 puts for $0.60 and
2,300 July 21 calls for $0.70. Volume was more than 15 times the previous open interest at each strike, showing that this is new positioning.

Known as a short strangle , the trade resulted in a credit of $1.30. The investor will keep that money as profit if the maker of building materials remains between $14 and $21 through expiration six months from now. The winnings will erode outside that level, turning to losses below $12.70 and above $22.30.

While options can be used to place direction bets on shares rising or falling, they can also be sold to make money from a range-bound move. Such trades are known as market-neutral strategies. (See our Education section)

MAS, whose products include cabinets, paint, and faucets, rose 1.26 percent to $17.69 on Friday. The stock is up 55 percent in the last year amid improving sentiment in the housing market, but the strangle seller now apparently expects a pause.

It faced resistance at $14 for much of 2012, which could be leading the trader to believe that this level will hold as downside support. In addition, the stock saw peaks between $18 and $22 several years ago, so he or she might think that it will struggle to go above that price range.

The trade pushed total option volume to almost 6 times greater than average in the session.



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: MAS

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