Mead-Johnson Nutrition has been trending higher, and investors are hedging their bets.
Our tracking systems detected the purchase of 5,000 June 65 calls for $0.40 and the sale of an equal number of July 65 calls for $1.40. Volume was below open interest in June but not in July, which suggests that an existing short position was rolled from one strike to the other.
The transaction was probably the work of an investor who owns shares in the baby-formula company and has written calls against them, which lets them generate income to reduce their cost basis in the stock. Today's trade let them collect an additional $1 of premium.
Half an hour later, a block of 5,000 July 60 puts were purchased for about $0.275, which will make money if MJN drops. While it isn't clear that the call and put transactions were related, both trades are examples of how options can be used to hedge risk. (See our Education section)
MJN is down 0.12 percent to $64.74 in afternoon trading but has more than doubled since getting spun off from Bristol-Myers Squibb in early 2009. The company's last earnings report on April 28 beat estimates and management raised guidance amid strong global demand for its products, which include Enfamil formula.
Overall option volume is 10 times greater than average so far today.
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