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Unusual spreads in Tempur-Pedic

Chris McKhann (chris.mckhann@optionmonster.com)

Tempur-Pedic International closed at a nine-month high yesterday and saw two large spreads that are positioned in opposite directions.

The action started with a put vertical spread with TPX at $38.88. A trader bought 3,000 March 39 puts for the ask price of $2.30 and sold the same number of March 35 puts for bid price of $0.60, with volume above open interest at each strike, according to optionMONSTER's Depth Charge system. The spread cost $1.70 to open, which would be at risk if TPX remains above $39.

Then, about an hour later, our Heat Seeker system detected a call vertical with shares at $38.28. The trader bought 5,400 March 41 calls their ask price of $1.65 and sold 5,400 March 45 calls for $0.40, also with volume that was more than open interest and therefore new positions. This call spread cost the trader $1.25, and its maximum gain of $3.75 would be realized with TPX above $45.

The trades certainly could be linked, but those looking for a sharp move rarely use spreads on both sides because that significantly reduces the potential gains. (See our Education section)

TPX finished the day up 1.74 percent at $41.41, its highest close since gapping down from above $43 back in early June. The mattress maker's shares had come off their highs above $87 in April and traded as low as $21 in late June.

optionMONSTER systems show than 38,000 TPX options traded in total on the day. That compares to a daily average of 4,500 in the last month.

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