|Back to main|
2/26/2010 6:32:37 PM
Shares of Staples Inc. (NASDAQ: SPLS ) closed up 24 cents, or nearly 1%, to $25.93 on the day Thursday despite the broader market sell-off, but at least one investor expressed moderate bearishness on a bet that the stock's strength could diminish in the near-term.
An investor bought the April 24-26 one-by-two put spread 5,000 times around 3:17 p.m. yesterday. The investor paid roughly 40 cents per spread. This means the investor bought the 26-stike puts for $1 per contract 5,000 times and sold twice as many April 24-strike puts for 30 cents per contract for a combined debit of 40 cents per transaction.
The April 24 puts closed down five cents on the day, and were home to open interest of 10 contracts. The April 26 puts closed down 12 cents and were home to open interest of just seven contracts, indicating the investor traded these options to open. This morning, open interest of the April 24 puts has climbed to 10,000 contracts, while the 26-strike puts saw open interest spike to 5,000 contracts.
Implied volatility of the 24-strike puts was 27%, and the 26-strike puts closed with an implied volatility of 22%.
Investors who bought this put spread are protected against a major rise in the stock because maximum risk on this trade is 40 cents if the stock pops higher than $26. Investors make a maximum profit of $1.60 per spread (the difference between the strike prices minus the premium paid) if the stock closes right at $24 at April options expiration. If the stock closes below $22.40, investors could incur unlimited losses because the investor would be short more puts than he is long.
Though this trade looks like a lot of put volume at face value, investors bought some of the puts and sold others, so that is why we say that this is moderately bearish instead of exceedingly bearish.