Focus Media fell hard yesterday, and one investor expects more volatility going forward.
optionMONSTER's tracking systems detected the purchase of 2,000 September 31 puts for $1.60 and 2,000 September 34 calls for $1.45, resulting in a cost of $3.05. Known as a strangle, the trade will profit from shares making a sharp move higher or lower. (See our Education section)
FMCN closed at $31.55 yesterday, down 5.31 percent. The owner of digital billboards in China rallied 60 percent in the first four months of the year, only to sell off in May and June along with many other Chinese stocks. It then bounced at its 200-day moving average but now seems to be making a lower high around $34.
The weakness comes despite the last financial report on May 24 showing a swing to profitability and 51 percent revenue growth from a year earlier. The next release hasn't been scheduled yet, but it will likely be later this month.
Option prices often increase before earnings as implied volatility rises, a trend that yesterday's strangle buyer may hope to exploit.
The trade pushed FMCN's total option volume to 6 times greater than average.
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