Markets

Bears paying for bullish trade in UTX

One investor is getting long United Technologies while letting bears finance the trade.

optionMONSTER's Heat Seeker tracking program detected the purchase of about 6,000 May 82.50 calls for $2.37. An equal number of May 60 puts was sold at the same time for $2.92, and volume was more than 35 times open interest in both strikes.

UTX rose 2.96 percent to $73.14, so it is closer to the strike price on the calls than the puts. Under normal circumstances, the calls would be worth more money, but yesterday's trade resulted in a credit of $0.55.

The reason is that implied volatility was 41 percent in the puts versus just 30 percent in the calls, probably because the broader market believes that a big drop is more likely than a big rally. The investor exploited that situation by selling the puts and now stands to earn infinite profits if UTX pushes higher.

The provider of aerospace equipment and escalators has repeatedly issued strong earnings reports, and raised guidance the last time results were published on Oct. 19. It's also in the midst of acquiring Goodrich, which has caused some investors to sell the stock. (See our new researchLAB service for more)

Overall option volume in UTX was 4 times greater than average in the session.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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