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Bull bets on Stanley Black & Decker

David Russell (david.russell@optionmonster.com)

Value hunters are turning to Stanley Black & Decker after a big selloff in the tool maker last week.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 3,000 January 80 calls for an average premium of $2.12 and the sale of an equal number of January 72.50 puts for $1.93. Volume exceeded previous open interest at each strike, indicating that new money was put to work.

Owning calls locks in the price where a stock can be bought, while selling puts generates income and creates an obligation to buy at a certain level. Combining the two strategies is strongly bullish and results in a highly leveraged upside position.

The investor paid just $0.19 to open the trade and now stands to double his or her money for every $0.19 that the stock closes above $80.19 on expiration early next year. The trade also faces unlimited losses below $72.50. (See our Education section)

SWK rose 3.75 percent to $77.16 on Friday but plummeted 14 percent earlier in the week after profit missed forecasts and management cut guidance. The drop brought the shares back to the same $77-$80 range where they peaked several times in 2011 and 2012 before breaking out early this year. Some chart watchers may think they're now attractive and wish to get long.

Total option volume was more than 4 times greater than average in the session, according to the Heat Seeker.

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