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Fun With Options: Trader Pockets $455K on Walgreen

Wednesday, 29 Sep 2010 | 9:53 AM ET

Some (options) guys (or girls) have all the luck.

Walgreens Store
Nick Ut
Walgreens Store

Well, at least one of them has had a tremendous amount of good fortune lately by playing long and short positions against each other on drug store chain Walgreen and pocketing nearly half a million dollars in profit.

This particular trader’s good fortune began back on Sept. 20 when he or she sold 35,000 put options at the October $27 strike price for an average premium of 17 cents apiece on a day when the stock closed at $29.24, according to information from Interactive Brokers.

The move to sell the puts looked extremely smart Tuesday, when Walgreen posted earnings of 49 cents a share that beat the consensus by a nickel. Shares gained 11.4 percent on the day to close at $33.81, a 15.6 percent jump in eight days.

The stock move hammered the puts, allowing the investor to buy back the options at a 4-cent premium per contract. The net gain, then, was 17 cents per contract, bringing the profit on the 35,000 contracts to $455,000.

Not stopping there, the investor then jumped on the bullish Walgreen bandwagon by rolling the puts to the $31 October contract for a premium of 14 cents per. That means the stock will only have to hold that level through the expiration to keep the full premium.

The cagey positioning was part of an active day for Walgreen in which more than 124,000 contracts were exchanged by mid-day, Interactive Brokers said.

Happy trading, for sure.

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