Options Trading News

December 24, 2012  Mon 2:14 AM CT

Pinnacle Entertainment spiked higher on Friday after agreeing to buy Ameristar Casinos, and one large trader is apparently looking to protect those gains.

optionMONSTER's Depth Charge tracking system detected the purchase of 3,000 March 15 puts in less than 2 minutes on Friday, led by a block of 2,683 that went for $0.85. There was no open interest in the strike at the start of the day, so this is fresh buying.

Shares of casino operator Pinnacle soared 21.35 percent to close at $16.20 on the $869 purchase of Ameristar, which saw its stock surge more than 20 percent as well. PNK had already been trending higher since July, when rebounded from support around 52-week lows near $9.

Investors apparently believe that the ASCA acquisition will boost Pinnacle's bottom line while cutting costs. Because PNK ran so high on the news, Friday's puts were likely purchased as a protective hedge on a long position in the shares rather than making a straight bearish bet.

These options lock in the price where the stock can be sold even if it crashes, but they will expire worthless if the shares are above the $15 strike price at expiration in mid-March. (See our Education section)

Friday's trading pushed total option volume in PNK to 6,191 contracts, 91 times its daily average in the last month.
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