Bears gunning for General Dynamics

optionMONSTER

The bears want to shoot down aerospace giant General Dynamics, which has rallied hard in recent weeks.

optionMONSTER's Depth Charge tracking system detected the purchase of 12,500 January 65 puts for $0.60 and the sale of an equal number of January 62.50 puts for $0.30. Volume exceeded open interest at both strikes, indicating that new positions were initiated.

The trade cost $0.30 and will earn a maximum profit of 733 percent if the stock closes at or below $62.50 on expiration. That would represent a 10 percent drop in the next 3-1/2 weeks.

GD fell 0.62 percent to $69.04 yesterday but is up 11 percent since mid-November. The shares appear to be rolling over around the same level where they peaked early last month, which could be leading some traders to expect a push lower with resistance in place.

Yesterday's trade, known as a vertical spread , is a common strategy to profit from such a belief. It generates significant leverage by selling out-of-the-money contracts to lower the cost basis, but also has a high probability of becoming worthless. (See our Education section)

Total option volume was 10 times greater than average in the session, according to the Depth Charge. Puts outnumbered calls by a bearish 52-to-1 ratio.

More From optionMONSTER

View Comments