Markets

True Religion seen stuck in range

True Religion's earnings missed estimates, and now traders are condemning the apparel company's stock to a few weeks in purgatory.

optionMONSTER's tracking systems detected the sale of about 2,500 November 20 calls for $0.30 to $0.40 and an equal number of November 19 puts for $0.75 to $0.85. The trade, known as a short strangle, is designed to profit from the stock remaining trapped in a range as expiration approaches on Nov. 19.

TRLG

TRLG fell 7.1 percent to $18.70 in afternoon trading after reporting third-quarter net income of $0.48, missing the $0.58 analyst forecast. Revenue missed estimates and profit margins weakened, continuing a trend from the previous quarter. Management also issued a weak forecast for the rest of the year.

The bad news follows bearish activity Monday, when investors bought more than 2,000 November 20 puts for $1.35. Despite the decline in the share price, those contracts are now bid at only $1.45.

The small move in the options results from TRLG's wide bid/ask spreads--a factor that investors should always study when trading options because they can add to cost.

The trader who sold the strangle today apparently thinks the stock will remain between $19 and $20 through expiration. If that happens, investor will get to keep the premium of about $1.15. The position won't lose money unless TRLG climbs above $21.15 or falls below $17.85.

Overall option volume is 8 times greater than average so far today.

(Chart courtesy of tradeMONSTER)

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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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