Polypore trade hedges against disaster

By David Russell,

Shutterstock photo

Polypore has been struggling, and one investor is hedging against a nightmare scenario.

optionMONSTER's Depth Charge tracking system detected the purchase of 5,000 September 22.50 puts for $1 and the sale of 2,500 June 35 puts for $3.20, resulting in a credit of $1.20. Volume was above open interest in both strikes.

The trader is positioning for a major collapse in the company, which has been trending lower since July. The trade's ideal situation is that PPO holds its ground for the next three months and then plummets toward $22.50 over the summer. The only way the position can lose money is if the stock falls below $33.50 before June expiration without proceeding all the way to $10.

The strategy is quite unusual, and combines elements of a backspread with a diagonal spread. (See our Education section)

PPO is up 2.92 percent to $36.69 today but is down 37 percent in the last six months. The stock peaked above $70 last summer but has been losing its ground amid weak demand for hybrid cars. PPO is a major supplier of membranes used in batteries and had previously touted hybrid vehicles as a growth opportunity.

Overall option volume in the name is more than 5 times greater than average so far today, with puts outnumbering calls by 8 to 1.

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: PPO

More from optionMONSTER




Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com