How one bull is playing United Rentals


At least one trader apparently believes that there is no stopping United Rentals.

Already up more than 1,700 percent in the last four years, the stock gapped higher again yesterday, adding 5.55 percent to $54.94. That's less than 4 percent below its all-time high from the middle of last month.

Those kind of lofty prices probably make some investors nervous about buying the shares outright, so one trader is using options to manage the risk in a vertical spread . Our Heat Seeker monitoring system detected the purchase of 2,000 April 57.50 calls for $2.20 and the sale of an equal number of April 62.50 calls for $0.65. Volume was more than triple open interest at each strike, clearly indicating that this is new activity.

Instead of paying the full price for the stock, the trader shelled out just $1.55. He or she now has the right to control a move between the two strike prices, collecting $5 if URI closes at or above $62.50 on expiration. That translates into profit of 223 percent based on the initial outlay. (See our Education section for more on how options can be used to generate leverage.)

URI has enjoyed breakneck earnings and revenue growth in the wake of the 2008 financial crisis, which caused banks to reduce lending. That made it harder for customers to buy their own equipment, creating big opportunities for leasing companies. Now they're also benefiting from stronger construction activity.

Total option volume was quadruple the daily average yesterday, with calls accounting for a bullish three-quarters of the total.

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