MeadWestvaco is handing out cash, and option traders want a
piece of the pie.
The packaging company announced that it would return $700 million
to shareholders while reducing up to $125 million in annual
expenses. It had previously planned to pay out $665 million, most
of which comes from the sale of forestland. MWV popped 4.82 percent
to 37.38 on the news.
The options paper was bullish as well, with optionMONSTER's Heat
Seeker monitoring system showing about 4,000 March 40 calls
purchased for $0.50. A similar number of February 35 puts was sold
seconds later for $0.40. Volume was more than 20 times the previous
open interest at each strike, indicating that new positions were
locks in the price where a stock can be purchased, while
generates income but creates an obligation to get long in the event
of a drop. Combining the two strategies is similar to owning shares
but at much lower initial cost.
For instance, yesterday's trader paid just $0.10 but will earn 900
percent in option premiums if the stock climbs to $41 by March
expiration. It's also noteworthy that the trader sold February puts
because it means that he or she has an additional month of upside
exposure versus downside risk. (See our
Total option volume in the name yesterday was 148 times greater
than its daily average for the last month, according to the Heat
Seeker. The company's next earnings report is scheduled for Jan.
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