Why put activity isn't always bearish
David Russell | firstname.lastname@example.org
MRO saw the purchase of 41,500 November 30 puts for $0.26 and the sale of a matching number of December 29 puts for $0.56. In HD, almost 18,000 contracts traded in the November 60s for $0.59 and the December 57.50s for $0.78.
In both transactions, volume was below open interest in the Novembers but not the Decembers. This suggests that investors had previously sold the shorter-dated options in hopes that the stocks would hold their ground. Now, they're rolling those positions to the lower strikes and forward in time.
That let them collect additional income while reducing the price at which they would have to buy shares. The move also avoids the possibility of being assigned the stock if MRO or HD close below $30 or $60, respectively, this Friday.
The activity is consistent with a cautiously bullish outlook, reflecting a belief that big drops are unlikely yet also concern that volatility may occur in the near term. (See our Education section for more on how calls and puts can be used to navigate a wide range of market conditions.)
MRO fell 0.69 percent to $30.23 yesterday, while HD inched higher by 0.33 percent to close at $61.16. Total option volume was more than 8 times greater than average in both names.
Earlier in the session, a similar trade was also detected in natural-gas stock Williams.