Downside position targets Generac

optionMONSTER

Generac has rallied hard, but traders are worried that what goes up might come down.

optionMONSTER's Depth Charge monitoring system detected the purchase of 3,100 November 40 puts for an average premium of $1.68. A matching number of November 35 puts was sold for $0.35. Volume was more than 7 times the previous open interest at each strike, indicating that new positions were initiated.

The trade cost $1.33 and will generate profit of 276 percent if the stock closes at or below $35 on expiration. (See our Education section for more on the strategy, known as a bearish put spread because it controls a move between two prices, in this case from $40 down to $35.)

GNRC fell 3.55 percent to $40.26 yesterday but is up more than 50 percent in the last year. The maker of electrical generators has enjoyed strong earnings growth as homeowners install backup residential systems. It's also benefited from cost controls and price increases.

The date of its next quarterly report hasn't been disclosed yet, but last year's calendar suggests it will occur in late October. Tuesday's downside spread will provide a hedge against declines before or after the release.

Total option volume was 23 times greater than average in the session, according to the Depth Charge. Puts accounted for a bearish 94 percent of the total.


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