A Bullish Options Bet on Honda Amid the Sell-Off
In the depths of a panic-driven stocks sell-off this week, an options investor was making a big bullish bet on Japanese automaker Honda Motor .
Options activity surrounding the sector was mostly quiet late in the week, but one investor bought 100,000 Honda Motor ADRs and sold the April 40 call 1,000 times, a trade known as a "buy-write" that positions him for upside in the stock.
"They want to see the stock move slowly higher, or find some sort of bottom to sideways trade in the market," said Brian Stutland, President of Stutland Equities. "It's a $3.8m bet that it'll return 7.5% in just one month's time," he added.
After Friday's earthquake, Japan's automakers have shut down production because of power outages after the disasters led to a nuclear plant shutdown.
Honda today extended its production halt in Japan for an additional three days, but The Wall Street Journal, citing a memo from the automaker, said Honda had warned U.S. dealers it was not sure whether it could resume full production at some Japanese plants before May.
While an extended production halt would be a negative for Honda, yesterday's G-7 meeting resulted in a pledgeamong the top central banks to conduct joint interventions in the currency markets to slow recent surge in the yen. A weaker yen benefits automakers because it makes Japanese products cheaper for foreign buyers.
"The production halts should mute near-term gains, while the G-7 meeting should put a bottom in the stock, which is what you want for a buy-write trade," added Stutland, an Options Actioncontributor.
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