Markets

Kinder Morgan draws protective trade

One investor wants protection on Kinder Morgan as the stock hovers near an all-time high.

optionMONSTER's Depth Charge monitoring system detected the purchase of 4,500 January 77.50 puts for $0.98 and the sale of an equal number of January 72.50 puts for $0.28. Volume was more than 7 times open interest in both strikes.

The trade resulted in a cost of $0.70 and will earn a maximum profit of 614 percent if KMP closes at or below $72.50 on expiration. Known as a bearish put spread , it's one of the most common strategies when investors are looking for a limited pullback in a stock's price. (See our Education section)

KMP rose 0.88 percent to $79.31 yesterday and is up 13 percent in the last three months. While most other stocks have been lagging since the summer, the Houston-based pipeline operator has been surging as investors flock to companies with big dividends. KMP yields almost 6 percent on a forward basis, compared with less than 2 percent for the 10-year Treasury note.

Based on its recent gains, yesterday's trade was probably the work of an investor who wants to protect against a near-term drop without unloading their stock.

Overall option volume in KMP was 6 times greater than average, with puts outnumbering calls by 15 to 1, according to the Depth Charge.

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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