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, 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
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)
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