U.S. Markets closed

Are Sotheby's options overpriced?

David Russell (david.russell@optionmonster.com)

Someone apparently believes that the market is too nervous about Sotheby's.

optionMONSTER's tracking systems detected the sale of almost 1,900 October 38 puts for $1.20. Volume was more than 7 times open interest at the strike, indicating that new positions were taken.

Selling puts lets the investor collect income now in return for agreeing to buy the stock in the event of a future selloff. If that drop doesn't occur, he or she will keep the credit as profit. Such transactions tend to occur on names that traders would be willing to own at lower prices, so they can also be used to essentially program buy orders . (See our Education section for more on how options can be used to manage risk.)

BID fell 0.5 percent to $41.83 in morning trading but is up 21 percent in the last three months. That gain, triple that of the broader market, has come despite a weak earnings report in May.

The auction house is now back above the same $40 level where it peaked in 2012 and earlier this year. That could make some chart watchers think that it will remain above that $38 level where the contracts were written.

Implied volatility has also remained elevated in the name, even as its actual volatility has waned. That also favors the put seller because it means options are potentially overpriced.

More than 3,300 contracts changed hands in the name yesterday, more than triple the daily average.

More From optionMONSTER