Calendar spread sees peak for Green Mountain

An investor is playing the chart in Green Mountain Coffee Roasters, targeting a key level from last year.

optionMONSTER's monitoring programs detected the sale of about 6,600 December 35 calls for $1.23 and the purchase of an equal number of March 35 calls for $2.40. Volume exceeded open interest at both strikes, indicating a new position was implemented.

The strategy is known as a calendar spread because it entails calls at the same strike price but with different expiration months. It's designed to exploit the quicker pace of time decay in the December contracts, and will earn its maximum profit if GMCR is just below $35 on Dec. 21.

At that point, they can close the entire position, or continue holding the March calls in hope it will keep rallying. The only money that can be lost is the initial $1.17 outlay, which makes the strategy different from most other market-neutral trades. See our Education Section for more on how options can be used to make money from the passage of time and range-bound moves.

Yesterday's transaction was also noteworthy because the coffee stock bounced at $34.06 in November and has remained below that level since gapping lower in early May. The calendar spread apparently looks for that price to become resistance going forward. GMCR rose 0.12 percent to $25.12 yesterday.

The trade accounted for almost two-thirds of the option volume in Tuesday's session.

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