PetSmart has been trending steadily higher for the last two
years, and one investor apparently thinks that it will hold those
optionMONSTER's tracking systems detected the sale of 2,500 April
35 puts for $1.05. The same number of January 35 puts were bought
at the same time for $0.25 against existing open interest,
suggesting that a short position was closed and rolled forward by
The transaction resulted in a net credit of $0.80 and will make
money as long as the pet-supply retailer stays above $35 through
PETM rose 0.69 percent to $39.60 in morning trading and is up 48
percent since the beginning of 2010. Its last earnings report on
Nov. 17 matched forecasts, but management issued strong guidance
for the fourth quarter.
Investors often sell puts on stocks they like because it lets them
earn income even if the shares fail to advance. The danger is that
they will be forced to buy a stock at the strike price if it falls
below that level. (See our Education section)
PETM's implied volatility is about 29 percent, significantly above
realized volatility at 20 percent. That means its options premiums
are overvalued relative to the stock's propensity to move, which
also explains why an investor would chose to sell puts.
The trade pushed total options volume in the name to 32 times
greater than average so far today.
(Chart courtesy of tradeMONSTER)
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