By Jud Pyle, CFA, chief investment strategist for the Options News Network
has not yet announced an earnings release date, and the company has not announced any news today. At least one investor, however, boosted put volume in the equipment manufacturer by selling a longer-dated spread.
We saw an investor sell the January 40-50 put spread 10,000 times for roughly $3.77 per spread. So far on the day, the January 40 puts are unchanged at around $3 per contract, while the January 50 puts have risen 10 cents to $7.10 per contract. The lower-strike puts are home to current open interest of 3,781 contracts, while the higher-strike puts are home to current open interest of 2,388 contracts.
Investors who sold this put spread are moderately bullish on DE, and expect the company's stock to closer higher than $46.23 (this trade's break-even price) at January 2011 expiration. Maximum gain on this trade is the premium collected ($3.77 per spread), which investors will achieve if DE shares are higher than $50 at January expiration, and maximum risk on this trade is $6.23 per spread (the difference between the strike prices minus the premium), which investors will incur if the stock drops below $40 per share.
The market expects DE to announce earnings sometime around Feb. 17 (analysts expect earnings of 17 cents a share). DE shares are currently trading around $50.80, down 30 cents so far on the day, which means investors need the stock to either hold or surge higher than their current level.
Heavy put-spread selling action does not necessarily mean investors should run out and buy DE shares, but keep in mind that someone in the options pits today is calling for the stock to hold its current levels throughout the next year.
Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."