Options Trading News

October 11, 2013  Fri 12:21 PM CT

Traders continue to look for Hertz to bounce following last month's sharp selloff.

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.
Share this article with your friends

Related Stories


What's behind put buying in Hertz

September 22, 2015

The car-rental giant had broken through upside resistance last week before pulling back with the rest of the stock market.

Invest Like a Monster - San Antonio: October 9-10

Premium Services

Archived Webinar

Education & Strategy

Options Academy: More on the Covered Call Strategy

Last week, we talked about the Covered Call and the misconceptions that surround it. We spoke about how an investor must realize that the Covered Call is actually a premium collection strategy and not so much a directional one. If an investor can grasp this idea, the investor stands to do a heck of a lot better in the strategy than they currently do.

View more education articles »