Traders selling puts as stocks churn
David Russell | [email protected]
optonMONSTER's monitoring systems detected unusual activity today in companies such as Banco Bilbao Vizcaya, Consolidated Edison and Vanda Pharmaceuticals. In each case they sold downside puts, receiving cash now in return for agreeing to buy the stocks if they decline.
The strategy often appears when investors lack short-term conviction, letting them earn some income without putting cash to work. They usually target stocks they like and would be willing to own at lower prices. (See our Education section)
In the case of BBVA, a block of 3,000 January 9 contracts priced for $1.03, pushing total option volume in the Spanish lender to more than 10 times the daily average. The $9 level is also close to its 200-day moving average and close to its peaks in September and October, which could make them downside below that price will be limited.
Even if the shares do fall below $9, the credit the received today would effectively lower their cost basis to $7.97. (See our Education Section for more.) BBVA is down 1.88 percent to $9.38.
New York utility ED has been falling for most of May, and is now back near potential support from December through February. This time, traders are taking a shot in the June 57.50 puts, which priced for $0.74 and $0.75. The stock is up 0.3 percent to $57.85.
Puts can also be sold when a company has been running to the upside. VNDA, for instance, is up 150 percent rally in the last three months amid excitement about its tasimelteon sleep-disorder drug. Today a block of 3,500 July 7 puts were sold for $0.27. (See related story)
In addition, drug maker Allergan has put selling in the September 95s for $2.65 and $2.66 today. Jeweler Tiffany also sees almost 2,700 of the July 85 puts sold, most of which fetched $0.50.