United Parcel Service and Norfolk Southern report earnings
today, and some bulls are exploiting the fears of others.
optionMONSTER's Heat Seeker tracking system detected trades that
took advantage of higher prices in the puts than the calls. Both
transactions let the investors get long at modest risk without
spending a penny of cash.
In the first, about 3,500 September 65 puts were sold on NSC for
$0.40 and an equal number of September 85 calls were purchased
for $0.30, resulting in a credit of $0.10. He or she now stands
to earn unlimited profits if the railroad stock surges past $85
by expiration. The shares ended yesterday's session up 0.31
percent to $76.45.
In UPS, they sold 10,000 September 65 puts for $0.30 and bought
an equal number of September 80 calls for $0.18, resulting in a
credit of about $0.12. UPS fell 0.15 percent to $74.05. The
shipping giant reports earnings this morning, while NSC is
scheduled for after the close.
The noteworthy thing about the transactions is that volatility
was much higher in the puts than the calls, which let the
investors collect credits even though the stocks were trading
closer to the strike prices on the calls.
The disparity resulted from nervousness before earnings and is an
example of how experienced traders can profit from the fears of
others. However, both positions risk of losing money if the
stocks experience significant drops. (See our Education section)
(A version of this post appeared on
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.