Protection is key to Melco Crown bet

By
A A A

Melco Crown has rallied hard, and now the option action is turning bearish.

Our Depth Charge monitoring program detected the purchase of 6,200 February 18 puts for $0.66 and the sale of an equal number of February 20 calls for about $0.39. Volume was more than 15 times the previous open interest at each strike.

The trade cost $0.27 and will make money if the Macau casino operator pushes lower in the next five weeks. It ensures an effective minimum selling price of $17.73 and a maximum of $19.73 because the short calls force the investor to unload shares if they go above $20.

The investor probably wants to protect a winning position in the stock and is willing to exit at a higher price. This strategy is known as a collar . (See our Education section)

MPEL is down 1.57 percent to $18.76 in afternoon trading but is up 39 percent in the last three months. The stock is now back near its highest level in almost six years, which could be leading some traders to expect a pause or a pullback.

Total option volume is quadruple the daily average so far 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: MPEL

optionMONSTER

optionMONSTER

More from optionMONSTER:

Related Videos

My Career No Longer Exists
My Career No Longer Exists          

Stocks

Referenced

Most Active by Volume

105,767,201
  • $46.30 ▲ 19.98%
80,574,036
  • $15.58 ▲ 1.56%
66,424,299
  • $3.46 ▲ 1.76%
42,459,394
  • $3.82 ▲ 0.79%
36,704,800
  • $13.98 ▼ 14.02%
35,625,113
  • $74.677 ▲ 1.31%
33,067,430
  • $29.26 ▼ 0.71%
32,374,580
  • $98.15 ▼ 0.23%
As of 7/30/2014, 04:04 PM