Options Trading News

October 3, 2012  Wed 2:45 AM CT

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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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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