Solutia has pulled all the way back to its level a year ago, and one investor is betting on a limited rebound.
optionMONSTER's Heat Seeker monitoring system detected the purchase of 1,000 December 15 calls for $2.10 and the sale of 2,000 December 17.50 calls for $1, resulting in a net debit of $0.10. Volume was above open interest in both strikes.
The trade was a ratio spread, with the potential to earn a maximum profit of 2,400 percent if the chemical company closes at $17.50 on expiration. Because of the larger short position in the upside calls, gains will erode above that level and turn to losses over $20.
It appears the investor is targeting a return to the top of SOA's recent trading range between about $14.60 and $17.70. It rallied from about $14 to over $22 late last year, and moved sideways for about eight months before crashing along with the rest of the market in early August.
Its last earnings report on July 25 beat expectations, but yesterday management cut full-year guidance -- in part because of weaker demand from solar and electronics companies. Shares fell 3.36 percent to $15.54.
Overall options volume was 13 times greater than average in the session, with calls outnumbering puts by 9 to 1.
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