Options Course: On Saturday, December 1, the CBOE, Option Pit and OptionsProfits are hosting a full-day class, Using Volatility to Improve Directional Trading CLICK HERE FOR INVITE AND TO REGISTER.
One stock that held up well on Wednesday and during the last few weeks is General Mills(GIS). The cerealist rallied 1.3% on the day and the stock is now less than 1% from its 52-week high. Consumer staples have acted well as investors reprice risk - peers like H.J. Heinz(HNZ) and Kellogg(K) are also not far from making new highs.
Option volume in GIS on Wednesday was 14% above normal, but it was not aggressive call-buying. Instead, investors were actually net sellers of option premium with a slightly negative delta bias. Most of the call volume was focused in the November 40 strike, which had a closing bid of $0.10. Investors who own shares and sold the 40 calls will make a quick 0.25% gain on their holdings if GIS doesn't rally above that level by Friday.
Given the possibility that a weak overall market could persist into the end of the month or longer, we like selling a put spread on GIS for December expiration. One month implied volatility, at almost 14% annualized, is well off its lows for the year, and will look rich in retrospect if the stock remains strong.
Trades: Buy to open 1 GIS December 37 put for $0.11 and sell to open 1 GIS December 39 put at $0.37.