Will Estee Lauder head back to lows?
David Russell | firstname.lastname@example.org
optionMONSTER's Depth Charge monitoring program detected the purchase of 2,500 September 55 puts for $2.61. Equal-sized blocks were sold at the same time in the September 52.50 puts for $1.58 and the September 50 puts for $0.93. Volume was more than quadruple open interest at all three strikes.
Known as a bearish Christmas tree, the strategy is designed to leverage a modest decline in the cosmetic company's share price. It cost just $0.10 to open and will earn a maximum profit of 2,400 percent if EL closes between $50 and $52.50 on expiration. Gains will erode below that level and turn to losses below $47.50.
The trade is similar to a ratio spread because twice as many contracts are sold further from the money than the number that are bought. That increases leverage by lowering the cost basis but also creates risk of loss if the stock moves too far in the intended direction.
EL is off 0.34 percent to $55.07 in midday trading. It has fluctuated mostly between $50 and $55 in the last two months, and today's bearish trade is designed to leverage a drop back to the bottom of that range.
Overall option volume is 5 times greater than average so far today, with puts outnumbering calls by 18 to 1.