Trader buys protection on Moody's

By David Russell,

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Moody's has been strong, but investors are nervous as earnings approach.

optionMONSTER's Depth Charge tracking system detected the purchase of 1,950 May 40 puts for $0.96 and the sale of an equal number of May 37 puts for 0.38. Volume was more than 4 times open interest at both strikes.

This put spread cost $0.58 to open and will earn a maximum profit of 417 percent if the stock closes at or below $37 on expiration. (See our Education section for more on how options can be used to generate leverage and hedge risk.)

MCO rose 2.65 percent to $41.85 yesterday and is up 24 percent so far this year. The stock recently touched its highest level since September 2008 and is attempting to hold support around its peak last year.

Despite being shamed by the subprime-mortgage crisis, the company is now flourishing. It's been focusing on new analytical services apart from debt securities and recently announced that it would charge more for credit ratings as new regulations inflate costs.

Guidance was better than expected the last time it reported earnings in February. The next release is scheduled for the morning of April 26.

Overall option volume in MCO was 8 times greater than average yesterday, with puts accounting for more than 85 percent of the total.

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: MCO

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