Collar Trade in Hess

CHICAGO (TheStreet) -- During midday-trading Monday, an investor in Hess(HES Quote) sold off the potential upside returns in the shares to decrease the cost of downside protection in a strategy commonly referred to as a collar spread.

The investor sold the out-of-the-money December 65 calls and bought the out-of-the-money December 50 puts. The December 65 calls, currently trading down seven cents on the day, have traded 9,000 times and are home to current open interest of 8,988 contracts.

The December 50 puts have risen five cents so far on the day and are home to current open interest of 288 contracts. Approximately 6,000 of these puts have changed hands so far today.

The investor sold 1.5 calls for every 1 put that they bought. Typically a collar will be contract neutral, where the investor sells just as many calls as the puts that they buy. This trade crossed the tape around 1:30 p.m. EDT.

Based on the trades at that time, the December 65 calls were sold for 60 cents, and the investor bought the December 50 puts for $1.75. That means the net cost of this trade to the investor was 55 cents. At the time of this trade, HES shares were trading down 20 cents to $54.54.

The heavy option activity we're seeing today does not seem to have a catalyst. HES did not announce any news of note today, and the company announced earnings before the open last Wednesday, so it is not as though this report is looming as a catalyst. But the shares are down more than 10% from their near-term highs in October.