U.S. Markets close in 3 hrs 23 mins

Nationstar draws cautious strategy

David Russell (david.russell@optionmonster.com)

One trader apparently suspects that Nationstar Mortgage might be running out of steam.

optionMONSTER's Depth Charge monitoring system detected the purchase of 4,706 January 40 puts for $5.40 and the sale of an equal number of January 45 calls for $4.40. Volume was almost quadruple open interest at both strikes, indicating new positions were implemented.

Owning puts locks in a price where shares can be sold in the mortgage-servicing company, while selling calls forces the trader to unload stock if it climbs to a certain level. Combining the two while owning shares is known as a collar . (See our Education section for other hedging strategies.)
 
Given the $1 debit it cost to open the position, the trader has ensured a minimum exit price of $39 and a maximum of $44 through early next year. He or she may have bought the stock at a lower price and now wants to delay profit-taking for tax purposes.

NSM fell 1.65 percent to $41.10 yesterday but has more than doubled in the last year. It has consistently reported strong earnings as large banks outsource the servicing of home loans.

Total option volume was almost 5 times greater than average in the session, according to the Depth Charge.
 

More From optionMONSTER