One trader believes that Forest Laboratories is trapped in a range.
optionMONSTER's tracking programs detected the sale of 3,000 March 31 puts for $0.55 and 3,000 March 33 calls for $0.20. Volume was above open interest in both strikes, indicating that a new position was opened.
The trade resulted in a credit of $0.75, which the investor will keep that if FRX stays between $31 and $33 on expiration. Gains will erode outside that range becoming losses below $30.25 and above $33.75.
Known as a short straddle , the trade is designed to profit from time decay eroding the value of the options rather than from a directional move. (See our Education section)
FRX fell 0.41 percent to close at $31.53 yesterday. Shares are up more than 10 percent since mid-December but have been shuffling sideways since a strong earnings report last month.
Given how much the slow-moving drug maker has risen in a relatively short time, some traders may think that it needs to consolidate, which would help explain yesterday's short straddle.
Overall option volume in the name to 5.5 times greater than average in the session.
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