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Bulls cautiously returning to Hertz
Hertz Global is down on accounting worries, and now traders are
using options to manage their risk in the name.
optionMONSTER's Heat Seeker monitoring program shows a flurry of call buying in the name today, starting early with the August 30s. More than 17,000 of those traded in the first 30 minutes of today's session, dwarfing previous open interest of 4,174 contracts. The biggest blocks fetched $1.
Those long calls have locked in the price where the car-rental stock can be purchased through expiration in mid-August, letting traders position for a move higher with limited risk. That way they don't have to worry about exiting if more bad news emerges, though those contracts will lose value if shares remain below $30. (See our Education section)
HTZ is up 4.51 percent to $28.25 in afternoon trading. It's trying to rebound from a sharp selloff earlier this month when the company said it would restate three years of financial results to fix errors that started in 2011. Management warned the project will hurt profitability.
Nonetheless, the shares held the same $26 level that's been the midpoint of their trading range for the last year. They're also posting higher lows along their 200-day moving average, which could make some chart watchers think its longer-term uptrend remains intact.
In addition to the activity in August, several other contracts are active. The Heat Seeker showed 6,800 of the July 28 calls bought, mostly for $1 to $1.70, along with 5,200 June 28s for $0.40 to $0.50. There was also a bullish combination trade in December, with the 25 puts sold and the 30 calls bought for a net cost of $0.70. That position will profit from a rally and suffer potentially huge losses if the stock falls.
Total option volume is quadruple the daily average so far today, with calls outnumbering puts by a bullish 5-to-1 ratio.