Will Tempur-Pedic need a cushion?

By
A A A

Tempur-Pedic is drawing downside positions before it reports earnings tomorrow afternoon.

optionMONSTER's Depth Charge tracking system detected the purchase of about 2,900 February 55 puts for $1.90 to $2. Roughly the same number of February 50 puts were also sold for $0.925, pushing volume to more than 4 times open interest in both strikes.

The trade resulted in a cost of about $1 and will let shareholder rest easy as the numbers are released. The strategy has the potential to earn a profit of some 400 percent if TPX closes at or below $60 on expiration.

In this type of vertical spread , the trader uses the credit from selling one set of options to finance the purchase of other contracts. (See our Education section for more on how investors can use options to generate significant leverage from modest fluctuations in stock prices.)

TPX fell 2.55 percent to $61.21 on Friday. It's been consolidating in a range for the last eight months following a 1,000 percent rally that began in March 2009. Along with Select Comfort, the stock has ridden a secular bull market in mattresses with advanced technology and materials, while traditional manufacturers such as Sealy struggle to survive.

Overall option volume in TPX was 11 times greater than average in the session, according to the Depth Charge.



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.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: TPX

optionMONSTER

optionMONSTER

More from optionMONSTER:

Related Videos

Stocks

Referenced

67%

Most Active by Volume

64,789,752
  • $117.60 ▼ 0.86%
53,107,118
  • $10.39 ▼ 1.05%
42,600,857
  • $17.10 ▼ 0.47%
36,917,582
  • $11.02 ▼ 0.36%
34,902,121
  • $40.75 ▼ 0.10%
31,489,742
  • $15.68 ▲ 0.06%
31,037,743
  • $75.63 ▲ 2.19%
29,605,187
  • $10.11 ▼ 0.69%
As of 11/25/2014, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com