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Fastenal Sees Bearish Options Move

At least one investor was buying puts in the apparent belief that the stock may be heading down over the long term.
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) -- Shares of


(FAST) - Get Fastenal Company Report

are edging down on the day without any specific news on the company. At least one investor appears to think that it could be a long-term trend.

The wholesaler and retailer of industrial and construction supplies is currently down 65 cents, or slightly more than 1%, to $51.07. The company is due to announce earnings on April 13 before the market opens.

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Analysts estimate earnings of 33 cents a share. Options action during afternoon trading suggests investors anticipate a long-term slide in the stock, but the sentiment might not be exceedingly bearish.

At 3:17 p.m. EST, a block of 8,850 out-of-the-money January 2012 50 puts changed hands for the ask price of $8.10 per contract. These LEAPS puts are home to current open interest of just 139 contracts, indicating investors most likely bought these puts to open.

These options are currently down 90 cents on the day and have an implied volatility of 31% compared to the stock's 30-day historical volatility of 17%. Investors who bought these puts will make money if FAST shares drop at least 18% throughout the longer term and trade below $41.90 prior to January 2012 options expiration.

If the stock declines significantly prior to expiration and the puts rally, investors could choose to sell these options back and take profits instead of unnecessarily holding on to them.

Put buying such as this is a bearish play, but not necessarily a reason for investors to short FAST stock. Keep in mind that the investor could have used the options position as a hedge against a long stock position. Investors could have bought shares of stock expecting upside, but also purchased puts to protect against a potential slide throughout the longer term.

-- Written by Jud Pyle in Chicago

At the time of publication, Pyle did not have a position in the stock mentioned. 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."