An unusual spread dominated yesterday's option trading in Lowe's as shares recovered from from Monday's market selloff.
A trader sold 25,600 April 36 calls for the bid price of $2.71 and bought 25,600 October 42 calls for their ask price of $1.42, according to optionMONSTER systems. The volume at each strike was more than 10 times the previous open interest, so this is a new diagonal spread.
The strategy, which entails buying and selling options at different expiration months, takes a maximum profit at that first expiration if shares are back down around $36 at that time. The trader may be using the longer-term options to hedge the position or may be looking to own those calls after the first expiration in anticipation of a bounce. (See our Education section)
LOW finished the day at $38.15, up 1.2 percent. The home-improvement retailer hit a high of $39.98 two weeks ago but finished Monday at $35.86, its lowest close since Jan. 16.
More than 61,000 LOW options traded in total, with fewer than 4,000 puts. That compares to average daily volume of 15,500 in the last month.
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