A large bearish trade sees limited upside in ITT Educational Services.
ESI fell 2.95percent to $65.86 in morning trading and is struggling against resistance at both its 50- and 200-day moving averages. It traded above $76 a month ago and hit a 52-week low of $50.22 in mid-December.
The options volume in the name is dominated by a May combination involving more than 2,500 contracts each in the 57.5 puts and the 70 calls. The previous open interest at both strikes was less than 50, so this was a new opening position. The trader bought the puts for $2.26, which was above the ask at the time, and sold the calls for $2.70.
It could be an outright bearish position. Some traders prefer this type of combination to shorting the stock because it can be easier than borrowing shares and has less risk. He or she could also be using the options as a collar to hedge a long position in ESI shares. That would lock in upside at $70 while protecting against a drop below $57.50.
Overall options volume is triple the daily average so far in the session.
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