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Fastenal attracts hedging strategy

David Russell (david.russell@optionmonster.com)

Fastenal has been going straight up, and one investor wants to hedge against a pullback.

optionMONSTER's Depth Charge tracking system detected the purchase of about 1,100 March 50 puts for $1.10. Roughly 3,300 March 45 puts were also sold for $0.20, resulting in a net cost of about $0.50.

The trade will earn a maximum profit of 900 percent if FAST closes at $45 on expiration. Below that level, the investor will be forced to buy stock. The strategy is often used by shareholders who want to against a pullback, and wouldn't mind buying more in the event of push lower.

It's known as a ratio spread because 3 times more puts were sold than were bought. See our Education Section for more.

FAST slipped 0.18 percent to $50.73 on Friday but is up 59 percent in the last year. The industrial-supply company, which sells items such as bolts, machinery and paints, has increased profitability by slowing growth and focusing on better same-store sales. It has also avoided hiring new workers and is relying more on vending machines to sell products.

Given how much the shares are up, some investors may think that they're due for a pullback, which appears to be the rationale behind Friday's spread.

The trade accounted for almost all the volume in the session, with puts outnumbering calls by 8 to 1, according to the Depth Charge.

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