Options Trading News

January 30, 2013  Wed 3:14 AM CT

One investor is betting big on Harman International's quarterly report tomorrow morning.

optionMONSTER's Heat Seeker monitoring system detected the purchase of purchase of 2,500 March 55 calls for $0.65 and the sale of an equal number of March 45 puts for about $0.65. There was almost no previous open interest in either contract, indicating that new positions were initiated.

If the maker of audio systems rallies, the calls owned will appreciate and the puts sold short will lose value, while the opposite will happen to the downside. That makes the trade similar to owning shares, but it will track the stock price less closely as time passes.

The benefit of the trade is that it cost essentially nothing to open, giving the investor a free ticket to a big move higher. But if it drops, he or she could be forced to buy shares for an effective price of $44.35 once the creidt from the put sale is included. (See the discussion of selling puts in our Education section for more.)

HAR rose 0.80 percent to $50.10 yesterday. The stock has hovered at $50 for the last three weeks, a level where it has peaked several times since 2010, so some traders may expect a big rally if that resistance is broken.

Total option volume was 18 times greater than average in the session, according to the Heat Seeker.
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Timing the Trade

Both break outs and a break downs need to have a couple things happen before it is considered a confirmed break out or break down by technical definition!  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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