Repairing a broken trade in Avon


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Someone is trying to repair a broken trade in Avon Products.

optionMONSTER's tracking programs detected the sale of 8,013 January 17 puts for $0.40 and the purchase of an equal number of January 20 puts for $2.45. Volume was below open interest in the 20s, indicating that an existing short position was closed and rolled lower.

Investors sell puts when they think that a stock will remain above a certain level. In the case of AVP, that level was $20. But it gapped down all the way under $18 following a poor earnings report on Oct. 31, leaving the trader at risk of being assigned shares. Adjusting to the lower strike removed that danger but cost $2.05.

Another benefit of the move is that the 20s they were short had little time value remaining, whil e the 17s have nothing but extrinsic value. So swapping to the lower strike allowed him or her to profit from the normal process of time decay . (See our Education section)

AVP fell 0.45 percent to $17.75 yesterday. The cosmetics maker has been trending steadily lower since hitting a 52-week high of $24.71 and then reversing in August.

Total option volume was 10 times greater than average in the name yesterday.

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

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