Masco facing range-bound strategy
David Russell | [email protected]
optionMONSTER's tracking programs detected the sale of 2,300 July 14 puts for $0.60 and
2,300 July 21 calls for $0.70. Volume was more than 15 times the previous open interest at each strike, showing that this is new positioning.
Known as a short strangle, the trade resulted in a credit of $1.30. The investor will keep that money as profit if the maker of building materials remains between $14 and $21 through expiration six months from now. The winnings will erode outside that level, turning to losses below $12.70 and above $22.30.
While options can be used to place direction bets on shares rising or falling, they can also be sold to make money from a range-bound move. Such trades are known as market-neutral strategies. (See our Education section)
MAS, whose products include cabinets, paint, and faucets, rose 1.26 percent to $17.69 on Friday. The stock is up 55 percent in the last year amid improving sentiment in the housing market, but the strangle seller now apparently expects a pause.
It faced resistance at $14 for much of 2012, which could be leading the trader to believe that this level will hold as downside support. In addition, the stock saw peaks between $18 and $22 several years ago, so he or she might think that it will struggle to go above that price range.
The trade pushed total option volume to almost 6 times greater than average in the session.