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Large hedge in Men's Wearhouse

Chris McKhann (chris.mckhann@optionmonster.com)

As shares of Men's Wearhouse continue their decline, the apparel retailer is facing a bearish combination trade.

optionMONSTER systems show that just over 10,000 MW options have changed hands this morning, already eclipsing its daily average of just 260 contracts in the last month. The action is almost entirely in one three-way spread.

A trader bought 3,000 November 38 puts for $2.80, sold 3,000 November 32 puts for $0.55 to complete the put vertical, and sold 3,000 November 40 calls for their bid price of $1.90. The volumes were multiples of respective open interest at each strike, indicating that these are new positions. (See our Education section)

This could be an outright bearish play as the trader spends $0.45 with a capped profit at $32 and the potential risk of shorting shares at $40. But it is more likely a collar to hedge a long position in MW shares. In that case the trader is giving up any gains beyond $40 to protect against a pullback to $32.

MW is down 1.01 percent to $38.29 today, its lowest level since the start of July. Shares hit a high of $41.03 two weeks ago and have closed below $32 only once since gapping up on the March earnings.

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