Quick-buck play on Tempur-Pedic

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Tempur-Pedic International ripped to a new all-time high on Friday, and one investor exploited the move to make a quick buck.

optionMONSTER's tracking systems detected the sale of more than 4,600 January 41 puts for $0.05 to $0.30 against open interest of 909 contracts. Total option volume in the mattress company was about 11 times greater than average in the session.

TPX TPX would end the session with an 11 percent gain at $43.65 after fourth-quarter results were much better than expected and management forecast a strong 2011. The company cited improving demand in the U.S. and acceptance of its new Cloud mattresses.

The put selling is an example of how traders can turn time and volatility into money. On one hand, they exploited the fact that the options would expire at the close of trading. On the other hand, they took advantage of a sharp move in the stock price, which increased demand for protection from investors buying the shares. (See our Education section)

The result of the trades was that they collected about $14,700 in premium and have no additional exposure to the name. The main risk they faced at the time of writing the puts was that TPX would end the session below $41.

(Chart courtesy of tradeMONSTER)




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.

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This article appears in: Investing , Options

Referenced Stocks: TPX

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