Markets

Giant leveraged trade on Popular

Puerto Rican lender Popular has pulled back to support, and one investor is looking for a rally.

optionMONSTER's Heat Seeker tracking system detected an unusual, but highly bullish, three-way strategy on the banking stock. It started with the sale of 20,500 July 3 puts for $0.28. Seconds later, 25,000 July 3.50 calls were bought for $0.12 and 30,000 May 3.50 calls were bought for $0.08. Volume was above open interest in all three strikes.

BPOP finished yesterday's session unchanged at $3 and has been slowly grinding higher since the summer. It peaked over $3.50 last month and now has returned to the same price area around its 200-day moving average (green line on chart) that previously offered resistance.

The last earnings report on Feb. 4 was worse than expected, highlighting the company's slow recovery from the 2008 credit crisis. Management, however, anticipates returning to profitability by yearend and has said the worse of its troubles have passed.

Monday's option trade reflects confidence in that expectation. It produced an initial credit of $34,000, which the investor will keep as long as BPOP remains above $3. Given the larger number of calls purchased, he or she is positioned to earn much more money if the stock climbs -- especially if it rallies soon enough for the May contracts to profit.

The main risk is that it drops below $3, which will cause them to lose money on the short puts.

The transaction accounted for almost all the activity in BPOP yesterday, and pushed total options volume to 117 times greater than average in the name, according to Heat Seeker.

(Chart courtesy of tradeMONSTER)

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

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


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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