The bulls are targeting Monster Beverage today with a highly unusual upside trade.
Our Heat Seeker monitoring program detected the purchase of about 3,000 September 77.50 calls for $2.80 and the sale of a similar number of June 70 puts for $2.35. Volume was more than quadruple the previous open interest in each strike, which indicates that new positions were initiated.
The noteworthy aspect of the strategy is that it uses different expiration months. The investor went closer to the money in the shorter-dated contracts, letting him or her receive more income and offset the cost of the longer-dated calls. Typically such trades use options of the same expiration.
This way, they have to buy shares in the energy-drink stock if it closes under $70 on June 20. If it's above that level, the puts will expire worthless and the trader will have a cheap long position that lasts an additional three months. The overall cost was $0.45. (See our Education section for other market-timing techniques.)
MNST is up 1.16 percent to $70.91 in afternoon trading. It fell as low as $63 on Friday on the heels of a weak quarterly weak revenue number but quickly rebounded and has been working higher since.
Another possible catalyst for the stock could be provided by soft-drinks giant Coca-Cola, which disclosed late yesterday that increased its stake in Green Mountain Coffee Roaster by more than half. MNST has also been considered a potential takeover target by KO.
Overall option volume in MNST is quadruple the daily average so far today, according to the Heat Seeker, with that bullish combination accounting for about 80 percent of the total.
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