Markets

Trade sees O'Reilly slide hitting brakes

O'Reilly Automotive has pulled back after a big run, and one investor apparently thinks that it's done falling.

ORLY

optionMONSTER's tracking systems detected the sale of more than 5,000 February 55 puts for $0.45 against open interest of 2,637 contracts. The trade pushed total option volume in the auto-accessory retailer to 13 times greater than average.

ORLY rose 0.17 percent to $58.31 yesterday. It rallied more than 30 percent between early September and mid-December, when it hit an all-time high of $62.98. The shares then dropped throughout January and bounced at about $55.50 early this month.

The company is scheduled to issue fourth-quarter results before after the bell on Feb. 16. Management raised guidance the last time it announced on Oct. 28, driving the stock above $55 for the first time ever.

Traders often sell puts before earnings to take advantage of the greater demand for downside protection. If results match or beat expectations, the contracts will quickly lose value and the investor will keep the premium.

The risk to the strategy is that he or she will have to buy ORLY stock at the strike price if it falls below that level. See our Education Section for other examples of market-neutral strategies designed to earn income from the passage of time.

(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.

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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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