Options Trading News

January 31, 2013  Thu 1:47 AM CT

Someone is looking for things to get interesting in Smithfield Foods.

optionMONSTER's tracking programs detected the purchase of about 1,200 March 24 puts for $1.15 and a similar number of March 24 calls for $0.85. That translates into a cost of $2.

Known as a straddle, the trade is designed to profit from increased movement in the Virginia-based pork producer. It will also make money if implied volatility increases, which would drive up the value of the options.

That appears to be the rationale behind the strategy because SFD reported third-quarter results on March 8 last year. While the company hasn't yet announced its earnings date for this year, it will probably be around the same time. Traders often buy straddles and strangles before such events, betting that option premiums will rise. (See our Education section)

SFD fell 1.27 percent to $23.39 yesterday but is up 25 more than 25 percent in the last six months. It's now back to a potential resistance level from February 2012, which could be leading some chart watchers to expect a sharp pullback or an explosion higher. Both outcomes would favor the long straddle.

Total option volume was 6 times greater than average in the session.
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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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