AOL has been rallying hard, and investors are betting on another
explosive move.
optionMONSTER's market scanners detected the purchase of 4,000
December 35 puts for $1.60 and an equal number of December 36 calls
for $1.50. Volume was more than triple open interest at both
strikes.
The strategy cost $3.10 and is designed to profit from a spike in
volatility
. Sharp movements in the near term would drive up premiums and
cause the position to appreciate. It will also make money if AOL
closes below $31.90 or above $39.10 on expiration five weeks from
now. (See our
Education
section for more on the trade, which is known as a
strangle
.)
The Internet stock began rallying in September 2011 and quadrupled
through early this month when it peaked near $44. Shares are
currently up 1.82 percent to $35.75 in afternoon trading.
AOL's last three earnings reports have beaten expectations amid
improving advertising sales, but it's been pulling back since the
most recent set of numbers on Nov. 6. Some traders may now expect
another big rally or a collapse if it fails to hold those gains.
The strangle trade pushed total option volume to more than triple
average amounts in today's session.
