Volatility buyer targets McGraw-Hill

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McGraw-Hill has been consolidating after a selloff, and now one investor is looking for another volatility spike.

optionMONSTER's tracking systems detected the purchase of 2,500 August 27.50 puts for an average premium of $1.575 and a matching number of August 35 calls for $0.25, resulting in a net debit of $1.825. The trade pushed total option volume in the publishing company to more than triple its average level.

MHP Chart MHP, also the parent of credit-rating firm Standard & Poor's, rose 2.04 percent to $28.49 in afternoon trading. The stock has lost 23 percent of its value since mid-April along with financial shares as investors worried about hearings in Congress earlier this month.

Its last earnings report on April 27 was better than expected, with inline revenue and management maintaining its full-year outlook.

The option trade, known as a strangle, is designed to profit from MHP making a sharp move higher or lower. It will make money if the stock rises above $36.825 or falls below $25.175 by expiration. Given that the shares are trading close to the lower end of the strangle, it appears the investor thinks a drop is more likely.

Implied volatility MHP surged as high as 48 percent last month from 26 percent in mid-April but has now pulled back to about 42 percent. Another spike in volatility would also push up the value of the strangle.

(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: MHP

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