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October 3, 2012  Wed 2:45 AM CT

STZ: SEE CHART GET CHAIN FIND STRATEGIES
Constellation Brands has been range-bound for the last month, and one trader apparently believes that the stock could drop by early next year.

STZ rose 2.27 percent to $33.41 yesterday. The alcoholic-beverage company gapped up from below $22 after its earnings report in late June and powered higher until hitting resistance around $34 last month. Since then it has been stuck between that level and $32.

A trader sold 4,250 October 30 puts for $0.40 and bought the same number of January 30 puts for $1.40, according to optionMONSTER's Depth Charge system. Volume was below open interest in the October contracts but not the January options, indicating that a long-put position was rolled forward in time. By paying a net $1 for this put roll, the trader gets another three months for the position to work.

Our systems did not identify any stock trades tied to the option activity yesterday, but the puts could have been bought to hedge a long position established earlier. If not, they would be a straightforward bet that STZ will fall more than 11 percent from current levels by early 2013. (See our Education section)

The trading helped push total volume in the name to nearly 16,000, more than 5 times its daily average for the last month.
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Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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