Position hedged in United Technologies

By David Russell,

Shutterstock photo

One investor is targeting a key level on the chart of United Technologies.

optionMONSTER's monitoring systems detected the purchase of 3,500 January 75 puts for $3.30. Equal-sized blocks were sold at the same time in the January 87.50 calls for $0.94 and the January 67.50 puts for $1.56.

The investor is probably using the strategy to hedge a long position in the industrial conglomerate. He or she is targeting an exit price of $87.50, the exact same level where UTX peaked in March before reversing lower. That could be leading some chart watchers to expect a rally back to that price, followed by a pause.

The trader sold those upside calls to help finance the purchase of the puts , which will provide a hedge against a drop. The investor now stands to collect $7.50 if the stock falls to $67.50. It cost $0.80 to open the position, which implies a profit of more than 800 percent if that decline occurs. (See our Education section)

UTX rose 1 percent to $78.77 yesterday, continuing to trade in the middle of its range for the last two years. Recent earnings reports have been mediocre because of weakness in Europe.

Overall option volume was almost twice the daily average, with that bearish three-way trade accounting for more than half the total.

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: UTX

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