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Cautious trade in Container Store

By: optionMONSTER
Posted: 12/20/2013 4:47:00 AM
Referenced Stocks: TCS

Container Store went public last month, and now traders are for protection.

optionMONSTER's Depth Charge monitoring system detected the purchase of 4,000 April 40 puts for $3.40 and the sale of an equal number of April 45 calls for $2.94. Volume was more than 30 times the previous open interest at each strike, indicating that new positions were initiated.

Owning puts locks in the price where shares can be sold in the specialty retailer, while selling calls locks in a level where they must be sold. Combining the two sets maximum and minimum exit prices, helping the investor manage a position in the stock.

Known as a protective collar , the trade cost a $0.46. They will receive a net $39.54 if it closes below $40 on expiration and a maximum of $44.54 over $45. Between $40 and $45, the options will expire worthless and they'll keep their shares. (See our Education section for other risk-management techniques.)

TCS dropped 8.13 percent to $40.25 yesterday but has more than doubled since it began trading on Nov. 1. Its share price was originally proposed at $14 to $16 in late October, but that level was raised to $18 amid strong demand.

The stock peaked at $45 earlier in the month, which could make some investors think that it will offer resistance and help explain yesterday's collar trade.

Total option volume was 54 times greater than average in the session, according to the Depth Charge.