China Yuchai has been climbing into potentially difficult technical territory, and one investor is positioning for a drop before next week's earnings report.
optionMONSTER's Depth Charge tracking system detected the purchase of 6,500 September 17.50 puts on the diesel-engine maker for $0.85. At the same time, equal-sized blocks of the September 20 calls and the September 15 puts were sold for $0.60 and $0.15, respectively.
CYD rose 0.69 percent to $18.95 on Friday and is up 19 percent in the last month. The company's profit more than doubled the last time it issued financial results on May 13, driven by a 76 percent revenue surge and a more profitable mix of products sold.
Despite the good news, the stock suffered a sharp reversal that day. It failed to hold early gains and wound up losing 9 percent of its value on heavy volume. The move resulted in a so-called bearish "engulfing candlestick" pattern, which can serve as resistance long into the future.
The option trade positioned for a correction as CYD drifted back into that same price range. It cost a net $0.10 to implement and will earn a maximum profit of 2,400 percent if the stock closes at or below $15 on expiration.
If done in isolation, the trade would lose money on a close above $20. However, it could have been implemented as a protective strategy by a shareholder who's willing to sell the stock for that price if it moves above that level.
The company will report earnings overnight between sessions on Tuesday and Wednesday.
Overall option volume in the name was 48 times greater than average in Friday's session.
(Chart courtesy of tradeMONSTER)
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