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Why trader sees Discover going limp

Discover Financial has been a favorite among the bulls in the last year, but one investor apparently believes that the company has lots its mojo.

The credit-card issuer got slammed along with most other stocks recently, losing more than 15 percent of its value since hitting a four-year high of $27.92 early last month. Yesterday the stock snapped back 9.17 percent to $22.63, but it is still facing potential resistance around the same price area where it bounced in June.

The option activity is looking for DFS to remain trapped around its current level. Roughly 2,500 contracts were sold in each the August 22 calls for $0.85 and the August 22 puts for $0.90. Known as a short straddle, the trade resulted in a credit of $1.75, which the investor will keep if DFS closes at $22 on expiration.

The strategy is designed to profit from the accelerating pace of time decay that will occur as expiration approaches at the end of next week. (See our Education section)

Volume was more than 12 times open interest in the calls and puts, with total volume in the name overall 10 times greater than average.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


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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