Looking at Fortune Brands ( FO), we see that over 4,000 of the Sept 10 puts, 2,900 of the June 10 puts, and over 1,600 of the June 12.5 puts have traded. The current open interest in each of these put contracts was previously zero, according to the Sidewinder report at www.onn.tv. What is interesting about this activity is that the bulk of the volume has been initiated by buyers. The September puts traded for around 65 cents, meaning the investor needs the stock to close below $9.35 at September expiration for the puts to make money. Likewise, the June 10 puts traded for around 40 cents, so those have a break-even of $9.60. Shares of FO slumped Monday, falling more than the market. FO dropped over 6.3% on the day, to close at $17.86. That brings the 12-month return of the shares to negative 70%. The bear case for FO has been that its product mix, which includes Titleist golf clubs as well as Jim Beam and Maker's Mark whiskey, is getting pummeled in this recession. Put-buying like this does not mean that investors should run right out and sell all of their shares in FO. After all, the put-buyer could be buying stock one for one with the puts, expecting a gap to the upside. However, it is worth nothing this activity because if these puts do become in the money, the stock would have to drop nearly 50% from already depressed levels.
Jud Pyle is the chief investment strategist for Options News Network 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.