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Calls smooth ride in Constellation

Posted
3/7/2014 12:06:00 PM
By: optionMONSTER
Referenced Stocks:STZ

Constellation Brands has been climbing steadily, and one investor using options to guide the move.

optionMONSTER's tracking systems detected the purchase of 5,000 July 90 calls for $2.80 and the sale of 4,000 October 95 calls for an average premium of $2.475. Volume was below open interest in the July contracts, so it appears that a short position was rolled forward in time.

They probably own shares in the beverage company and had sold the 90s as part of a covered-call position . Buying them back today cost $410,000 but gives him or her the right to receive an additional $5 on 400,000 STZ shares--a potential return of $2 million. He or she also removed the upside limit on a 100,000 other shares. (See our Education )

STZ is down 0.21 percent to $83.67 in midday trading and has appreciated more than 250 percent in the last two years. It's been riding a wave of strong earnings and positive momentum since it took over distribution rights for Corona beer in the United States.

Total option volume is 11 times greater than average in the name so far today, with calls outnumbering puts by 96 to 1.