Caution reigns before CarMax reports
David Russell | [email protected]
optionMONSTER's Depth Charge monitoring program detected the purchase of 3,000 October 50 puts for $1.50 and the sale of an equal number of October 45 puts for $0.20. Volume was more than 5 times open interest at each strike, indicating that new positions were opened.
Owning puts fixes the price where shares can be sold in the automobile retailer while selling them creates a buy order. Combining the two strategies essentially results in a short trade between $50 and $45. It cost $1.30 to enter and will earn a maximum profit of 285 percent on a drop to the bottom of the range or lower. (See our Education for more on the trade, known as a bearish put spread.)
KMX is down 1 percent to $50.68 in afternoon trading but is up more than 70 percent in the last year as an improving economy lifts car demand. The stock peaked above $52 earlier in the month and has been drifting lower since.
Overall option volume is 23 times greater than average so far in the session, with puts accounting for a bearish 88 percent of the float.