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Income strategy at work in Mead Johnson

Mead Johnson Nutrition makes infant formula, and one investor is milking income from the name.

optionMONSTER's tracking systems detected a four-way transaction that appears to result from a put credit spread being rolled higher. The strategy is a market-neutral trade that earns premium from the passage of time rather than a directional move.

The January 70 puts were sold for $0.78 and the January 65 puts were bought for $0.25. At the same time the January 60 puts were bought for $0.10 and the January 55 puts were sold for $0.05, but volume was below open interest. Blocks of 1,380 contracts traded in all four strikes.

It appears that the investor had previously sold the January 60 puts and bought the 55s to hedge against a drop. Now they closed that position at a cost of $0.05 and opened a new spread in the 70s and 65 for $0.53. The net result is that they collected $0.48 of income. (See our Education section)

MJN is off 0.59 percent to $74.03 and has been trending steadily higher since early 2009, when it was spun off from Bristol-Myers Squibb. The company has repeatedly beaten earnings estimates amid strong demand for its Enfamil formula in emerging markets.

Overall option volume in MJN is more than twice the average mount 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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