Why one Eaton trader is selling puts

optionMONSTER

Eaton has made a huge comeback this year, and one trader apparently believes that the power-management company will hold onto most of its gains.

optionMONSTER's tracking systems show that 1,563 April 48 puts were sold for $1.25 and $1.30 in less than a minute on Monday afternoon. This is clearly a new position, as its volume was more than 7.5 times the strike's open interest of just 205 contracts at the beginning of the day.

The put seller is looking for ETN to close above the $48 strike price at expiration in mid-April. If the stock is below that level, the trader will face the obligation to buy shares at an effective price of $46.75 when the credit from the put sale is factored in. (See our Education section)

ETN rose 2.05 percent on Monday to close at $54.18, just off its 52-week high. The stock has traded in a V-shaped pattern this year, falling from above $52 in late February to a 52-week low under $37 in mid-July, then ripping all the way to a 2012 high of $54.75 on Dec. 21.

MKM Partners reiterated its "buy" rating on the name and lifted its price target to $61 from $57 on Dec. 26 . That followed a similar move on Dec. 20 by Longbow Research, which raised its price target $60 on Dec. 20 while also maintaining a "buy" rating. Both firms cited benefits from Eaton's acquisition of electrical-equipment maker Cooper Industries announced in May.

Monday's trading pushed total option volume in the name to 3,386 contracts, 2.5 times its daily average for the last month.

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