Options Trading News

November 2, 2012  Fri 3:16 AM CT

A large put trade dominated yesterday's option activity in Lowe's even as the stock posted a five-year closing high.

LOW gained 1.79 percent to end the session at $32.96, its highest closing price since the middle of 2007 and not far from its intraday peak of $33.29 two weeks ago. Shares of the home-improvement retailer have climbed from the support and 2012 lows just under $25 set in early August.

A trader sold 6,336 November 31 puts for the bid price of $0.17 against previous open interest of 8,266, according to optionMONSTER's systems. At the same time, he or she bought 5,940 January 33 puts for the ask price of $1.77 in volume that was more than 10 times the open interest at that strike, clearly indicating a new position.

There are two possible strategies behind this trade. It could be a new diagonal spread, which involves buying and selling options at different expiration months. That would be looking for LOW to trade down to $31 in the next two weeks.

The second possibility is that the trader is rolling a long-put position, selling the November contracts and buying the January options. That would give the strategy another two months to work while raising the strike price by $2. (See our Education section)
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