Investors are using options to leverage a move in Mexican cement giant Cemex.
optionMONSTER's Heat Seeker monitoring system detected the purchase of 1,000 January 11 calls for $1.55 and the sale of an equal number of January 11 puts for $1.25. Less than 20 minutes later, another 1,000 puts were sold, this time in the January 10s for $0.86. An additional 1,000 January 12 calls were bought for $1.07. Volume exceeded open interest at all four strikes, indicating new activity.
It appears that two bullish " stock replacement " strategies were implemented, both similar to owning common shares but with much lower costs and greater price sensitivity.
The first trade cost $0.30 and will make money if CX is above $11.30 on expiration. The second cost $0.21 and will profit above $12.21. Both also have downside risk and create an obligation to buy shares for $11 and $10 respectively.
CX fell 3.02 percent to $10.92 yesterday but has more than doubled in the last year. It's been rallying amid improved sentiment toward construction and as a better credit market eases worries about its hefty debt load.
The investor probably likes the company in the long term but isn't sure how it will trade in the next few months. Selling the puts and buying the calls prevents him or her from missing a breakout if the stock explodes higher while also programming a purchase order at a lower price in the event of a drop. (See our Education section for more on how to manage trades more effectively with options.)
More than 5,600 contracts changed hands in the session, twice the daily average.
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