Unusual option trading in Safeway is looking for the supermarket chain's stock to drop more than 10 percent in coming weeks.
SWY is up 0.93 percent to $22.71 in midday trading. It is making up some of the ground lost yesterday as it fell from above $23. That was the highest level since shares gapped down in July, but the stock has been trending up from below $16 in the last five months.
SWY option volume is closing in on 13,000 contracts, compared with a daily average of 3,400, and most of the day's action is in one put spread . (See our Education section)
A trader bought 4,000 April 22 puts at the ask price of $0.80 and at the same time sold 8,000 April 20 puts at the bid price of $0.20. The previous open interest at both strikes was less than 100, so this is a new opening spread.
This ratio spread is a way of making a hedged bearish trade. If SWY remains above $22 through expiration, the trader stands to lose only $0.40. The maximum profit comes if it trades down to $20, at which point the 22 puts expand to $2 and the 20 puts expire worthless. Below $20 the trader faces assignment and the obligation to buy shares .
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