Protection is key to Starwood trade

By David Russell,

Shutterstock photo

Starwood Hotels & Resorts is back to resistance, and one investor is locking in gains.

optionMONSTER's Depth Charge monitoring system detected the purchase of 6,000 November 57.50 puts for $2.15 and the sale of an equal number of November 67.50 calls for $0.56. A block of 6,000 November 50 puts was also sold for $0.58, but volume was below open interest in those.

It appears the investor owns shares in the Connecticut-based hotelier and previously owned the 50 puts as protection. Now that the stock has climbed, he or she exited them and paid a net $1.01 to implement the new strategy. The trader now has the right to sell the shares for $57.50 if they fall below that level and must relinquish them for $67.50 if they climb above that price.

HOT fell 1.17 percent to $59.78 yesterday but is up 11 percent since the start of August. The shares are now back around the same $60 area where they have peaked several times in the last 1-1/2 years, which could be leading some chart watchers to believe that they will hit resistance once again.

Yesterday's option activity was noteworthy because the investor switched from a simple protective strategy in just the puts to a collar trade, which includes the short calls. That generated extra income to lower the cost. See our Education Section to learn more on hedging.)

Overall option volume in the name was more than 5 times greater than average in the session, according to the Depth Charge.

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: HOT

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