PetSmart has been parked at a long-term high for months, and one
investor is worried about a drop.
optionMONSTER's Depth Charge tracking program detected the purchase
of about 2,000 April 65 puts for $2.10 and the sale of an equal
number of April 60 puts for $0.80. Volume was more than triple open
interest at both strikes.
The trade cost $1.30 and will earn a maximum profit of 285 percent
if the specialty retailer closes at or below $60 on expiration.
It's known as a
bearish put spread
because it leverages a move between two prices, in this case $65
and $60. (See our
PETM fell 1.56 percent to $67.12 yesterday. The stock more than
quadrupled in value between late 2008 and mid-2012 but has been
trading in a range since then despite consistently strong
financials. That could be leading some traders to believe that all
the good news is priced in, making them concerned that a drop is
The sector has also been weak recently, with the SPDR S&P
retail fund up less than 2 percent in the last month while the
broader S&P 500 climbed more than 4 percent in the same period.
That marks a shift from earlier years, when the group consistently
outperformed the broader market.
Total option volume in PETM yesterday was more than 14 times
greater than its daily average, according to the Depth Charge. Puts
outnumbered calls by a bearish 20-to-1 ratio.
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