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Options Trading News

July 17, 2012  Tue 2:16 AM CT

TAP: SEE CHART GET CHAIN FIND STRATEGIES
One investor is taking a careful bet on Molson Coors Brewing, which has been fluctuating in a range for the last year.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 2,500 January 45 calls for $0.98 and the sale of an equal number of January 35 puts for $0.83. The trade cost $0.15 and will perform similarly to owning shares in the Colorado beer company.

If TAP rallies, the calls will appreciate and the puts will lose value, while the opposite will happen to the downside. The position will track movements in the shares less closely as time passes and expire worthless if they remain between $35 and $45.

There is also a relatively low danger of losing money because TAP hasn't traded below $35 since the first half of 2009. Based on that risk profile, it appears the investor is placing a low-cost bet on a rally in the near term, accepting that it may go nowhere. (See our Education section for more on how calls and puts can be used to exploit a wide range of market expectations.)

TAP fell 0.27 percent to $40.75 yesterday. Total option volume was almost 5 times greater than average, according to the Heat Seeker.

The company's next earnings report is scheduled for the premarket on Aug. 7.
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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