How ADT trade is playing volatility

optionMONSTER

A complex trade is apparently combining stock and options to bet on higher volatility in ADT.

optionMONSTER systems show that 6,750 May 30 puts was bought for the ask price of $1.25 in volume that dwarfed previous open interest of just 45 contracts. Just before that, more than 3,500 April 32 calls were sold for $0.35 against open interest of 16,214.

Around the same time, 449,000 ADT shares were bought for $31.0837--the largest block of stock in the name by a factor of 20. That would be roughly equal to the delta of the long puts and short calls, creating an overall position that is looking for volatility to be higher than that implied by the options' prices. (See our Education section)

ADT hit a 52-week low of $27.93 two weeks ago but is up 1.38 percent to $30.88 this afternoon. The electronic-security company, which reports earnings report at the end of this month, has faced strong resistance at $32 since gapping below that level with its last quarterly results in late January.

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