Fear abounds in ITT Education Services, and one investor is
using it to get long.
optionMONSTER's Heat Seeker tracking program detected an unusual
combination strategy in the stock, using the extreme demand for
downside protection to place an upside bet. Some 2,025 October
67.50 calls were bought for $5.30 and an equal number of October 55
puts were sold for $5.50, resulting in a credit of $0.20.
The remarkable thing about the transaction is that ESI was trading
for $65.50 when the options priced, meaning the calls were much
closer to the money
than the puts. Under normal circumstances, it should have cost them
money to place the trade. But they were able to collect a credit
was 60 percent in the puts versus just 31 percent in the calls.
That means the market is pricing in a much greater probability that
the stock will fall than rise. Taking a contrary bet lets today's
trader exploit that perception and positions them for huge gains if
ESI rallies above $67.50. He or she also stands to lose money below
The stock is down 0.92 percent to $65.94 in early afternoon trading
and has been attempting to find its footing after the for-profit
education industry took a beating in 2010 and early 2011.
ESI reported better-than-expected earnings and revenue yesterday
morning, but student enrollment continued to decline. (See
Today's bullish trade pushed overall options volume in the name to
8 times greater than average.
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