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With about 90 minutes to go in yesterday's trading session, somone banged out 5,500 puts in Costco's April options.
When somone buys puts, the natural assumption is that they are bearish. But hold on--OptionMonster's tracking systems show a block of 216,000 shares of COST [COST
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] stock hitting at the exact same second!
Now since each option at that April 45 strike (PRQPI) represents 100 shares of stock, those 5,500 contracts equal 550,000 shares of stock equivalent. Thus, my friends, I suspect that the customer bought the puts and the stock in a 2.5 to 1 ratio. (Check Costco's options action here).
Why would someone do this? Because this trader expects a VERY big move between now and April expiry. This strategy profits if COST either pops or breaks down after its mid-March earnings report; if shares sit, it loses. Costco closed yesterday at $46.45, down 2.84 percent on the day.
In this trade, the investor stands to make $2 million if the stock moves $10 up or down but, if the options are ridden all the way, could lose $2.70 some 5,500 times--or $1.485 million. So the bet is clearly on a large move in the short term.
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Jon 'DRJ' Najarian is a professional investor, CNBC contributor, and cofounder of OptionMonster.com.
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Data is a real-time snapshot *Data is delayed at least 15 minutes