Downside trade targets $13 for TiVo
David Russell | firstname.lastname@example.org
optionMONSTER's Depth Charge monitoring system detected the purchase of 5,728 July 10 puts for $0.44 and the sale of an equal number of July 11 calls for $2.33. That results in a credit of $1.89.
TIVO rose 0.23 percent to $12.97 yesterday but is stalling around the same $13 level where it peaked earlier in the year. The option action reflects a belief that it's more likely to fall in coming weeks than push higher.
Writing calls obligates the investor to sell shares for $11 if they're above that level on expiration, while buying puts locks in in a minimum exit price of $10. Including the $1.89 credit received, the investor is sure to get at least $11.89 but no more than $12.89 in this collar trade.
He or she probably owns shares in the digital video-recording company and is using the options as a protective hedge. Another benefit of the strategy is that it delays the sale by two months, potentially resulting in better tax treatment. (See our Education section)
Some 18,000 contracts traded in the session, slightly above average in the name, according to the Depth Charge.