Thursday, October 22, 2009

Strangle Strategist Bets on a Sharp Move for Deere & Company (DE)

After hitting a 52-week high yesterday, the stock is trading down 62 cents at $47.48.
The company doesn't report earnings until Nov. 25.
From Schaeffer's Daily Option blog:

Call traders were fond of Deere & Company (DE: chart, options) on Wednesday, as the stock received a halo lift from competitor CNH Global NV's (CNH) optimistic outlook. During the course of the session, the farming equipment guru saw about 22,900 calls cross the tape, more than tripling its average daily volume of fewer than 6,900 calls.

Most of the activity appears to have been the initiation of new bullish positions at the November 50 call, which saw 6,724 contracts change hands. Call open interest at the out-of-the-money 50 strike jumped from fewer than 1,100 contracts to almost 5,000 contracts overnight, with 68% of the calls trading at the ask price, suggesting they were bought.

Meanwhile, at least one strangle strategist is expecting a sharp move from the stock ahead of March 2010 options expiration. At 1:34 p.m. Eastern, a block of 299 March 48 puts and a block of 299 March 50 calls were purchased for $4.30 and $4, respectively. The net debit on the position stands at $8.30, which represents the most the investor can possibly lose. In order to profit from the strangle, the strategist needs the shares of DE to breach one of two breakeven levels by March expiration: $39.70 (48 - $8.30) or $58.30 (50 + $8.30)....MORE