Why traders keep piling into Hertz
David Russell | firstname.lastname@example.org
optionMONSTER's Heat Seeker monitoring program detected the purchase of 2,500 December 24 calls for $1.02 to $1.06 and the sale of some 5,000 December 26 calls for $0.48. Volume was more than twice the previous open interest at each strike, indicating that new money as put to work.
The trade cost about $0.08 and is highly leveraged to gains in the car-rental stock. It will earn a maximum profit of 2,400 percent on a move to $26, but profits will erode above that level because twice as many contracts were sold at the higher strike.
The investor probably bought shares at a higher price and is using this ratio spread to repair the losing trade. This way he or she will get huge leverage back to $26 and then be able to exit at higher prices. (See our Education section for more on how to manage your portfolio effectively with options.)
HTZ is up 3.86 percent to $23.41 in afternoon trading. It spent most of the last six months over $24 but then gapped lower on Sept. 26 after lowering full-year profit guidance. The stock has managed to hold its ground above $21--a key consolidation area from March--which could make some chart watchers think that it's due for a bounce.
Overall calls outnumber puts by a bullish 4-to-1 ratio so far today, according to the Heat Seeker. The company also saw bullish options trades on Oct. 1 and Oct. 4.