Options Trading News

October 16, 2013  Wed 10:13 AM CT

Traders are buying insurance on Goodyear Tire & Rubber, which has been running like a horse.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 2,000 November 22 puts for $0.95, along with the sale of 4,000 November 20 puts for an average premium of $0.305. Volume was more than triple open interest at both strikes, indicating that new positions were initiated.

The strategy is known as a ratio spread because twice as many contracts were sold as the number purchased. That reduces their cost, but also creates an obligation to buy more shares if the stock moves too much in the intended direction.

The trade--which cost $0.34 a share, or $68,000 in total--is probably the work of an investor looking to hedge a long position in the tire maker. He or she collects $2 a share, or $400,000, if it drops to $20. Gains stop below that level, and the the trader will be on the hook to buy 200,000 shares.

GT is up 0.94 percent to $22.55 and came into the session up 86 percent in the last six months. That makes it the second-best performing member of the S&P 500 index during that time, as shown on our researchLAB market-analysis tool.

Traders may also think that there's little downside risk below $20 because GT peaked near that level in July and August before breaking out. (See the discussion of put selling in our Education section for more.)

Total option volume is twice the daily average so far in the session, according to the Depth Charge. Puts outnumber calls by almost 9 to 1.
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