Options Trading News

May 24, 2013  Fri 4:45 AM CT

Navistar continued to fall from its 52-week highs yesterday, and one trader is positioning for more declines in the truck maker.

optionMONSTER systems detected the purchase of 3,000 October 38 puts for the ask price of $5.60 and the sale of 6,000 October 31 puts for their bid price of $2.40. The volume was far above the previous open interest at each strike, so these are new positions.

The trade, known as a ratio spread because one leg has twice as many contracts as the other, cost $0.80 to open. That is the maximum loss if NAV is back above $38 at expiration, while the maximum gain would come with the stock at $31. (See our Education section)

NAV lost another 2.62 percent to close at $36.45 yesterday after hitting a high of $38.81 last week. Shares were last below $31 as they bounced off support at $30 a month ago.

More than 10,000 NAV options changed hands on the day, almost 10 times the daily average in the last month.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. 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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