Markets

CIT Group faces range-bound trade

CIT Group popped on some good legal news last month, and now one trader thinks it's going to grind sideways for the next two weeks.

optionMONSTER's tracking systems detected the sale of about 5,000 May 43 puts for $0.66 and roughly the same number of May 43 calls for $1. Volume was more than twice open interest in both strikes.

The trader collected a credit of $1.66, which he or she will get to keep if the small-business lender closes at $43 on expiration. The gains will diminish on either side of that level, and turn to losses below $41.34 or above $44.66.

The strategy is known as a short straddle because it sits atop a single price level. It's a common market-neutral trade that exploits the passage of time rather than a directional move. Today's transaction also stands to benefit from the accelerating pace of time decay and falling price sensitivity that will hit occur as expiration approaches. (See our Education section)

CIT is off slightly to $43.22 in afternoon trading. It gapped higher on April 20 after regulators removed a restriction on the company accepting new deposits. It issued a complicated earnings report the next week, addled with unusual items tied to debt extinguishment.

It also faces bearish momentum over the intermediate term, with a sharply declining 50-day moving average after a selloff earlier in the year.

The mix of improving news but weaker technicals could make some traders think it will mark time for the next few weeks, which explains why they'd sell a straddle.

The transaction pushed overall options volume in CIT to more than triple the daily average so far today.

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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