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Chart levels key to Tempur strategy

David Russell (david.russell@optionmonster.com)

One investor is playing key chart levels ahead of Tempur Sealy's earnings report next week.

optionMONSTER's Heat Seeker monitoring system detected the purchase of about 3,200 November 39 calls for $1.85 and the sale of an equal number of December 34 puts for $1.50. Volume was more than 15 times open interest at both strikes, indicating that new bets were placed.

Selling puts generates income, while creating an obligation to buy stock at lower levels. Owning calls locks in a purchase price, letting investors cheaply position for a rally. Combining the two strategies is highly bullish, resulting in a position that's similar to owning shares. (See our Education section.)

The unusual thing about the trade is that it used different expiration months. As a result, the investor has only three weeks of upside exposure, but eight weeks of downside risk. That suggests they're wagering on strong numbers when earnings come out after the closing bell on Nov. 5.

TPX rose 0.91 percent to $38.81 yesterday. It gapped violently lower after cutting guidance in June 2012 and has been trying to work its way higher since. The stock peaked around $34 in 2010 and again last year, which could make some chart watchers expect support at that level.

Overall option volume was 5 times greater than average in the session, with the bullish combination accounting for about three-quarters of the total.

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