What's behind put selling in Gildan

By David Russell,

Shutterstock photo

Gildan Activewear is lifting itself from a long period of consolidation, and one investor apparently thinks that there is no going back.

optionMONSTER's tracking systems detected the sale of about 2,100 March 30 puts against open interest of just 860 contracts. A single large block priced for $0.40, but some fetched $0.45 after the share price dropped.

GIL fell 0.45 percent to $31.18 in morning trading but is up 11 percent in the last month. The company sells apparel such as shirts and fleeces upon which other organizations print logos or silkscreens. Its last earnings report on Feb. 8 beat expectations amid strong demand.

The shares have been grinding sideways since last April, making incrementally higher lows and following their 200-day moving average. This month, it appears to be finding support above $30--a level that had offered resistance in late 2010. Some chart watchers may conclude that significant downside is unlikely, giving them confidence to write protection.

The trade reflects a belief that GIL will remain above $30 through expiration. If they're right, they will keep the premium; if they're wrong, they will have to buy stock at the strike price.

Selling puts is a common strategy when investors want to take a position in a name without shelling out cash to buy the underlying shares. The benefit is that they don't need the stock to rise to make money, but the danger is that they have similar downside risk as owning shares. (See our Education section)

Overall options volume in GIL is 14 times greater than average so far today.

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: GIL

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