AutoNation dipped down as much as 14 percent Friday, and one trader is using the options to take a further bearish position.
Shares of the national car dealer were above $14 yesterday but are currently down 12.77 percent on the day to $11.95 after UBS downgraded them this morning from "neutral" to "sell." AN stock has been in a steady uptrend since hitting a low of $3.97 last fall, but that $14 level has been resistance since last June.
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The options trade was all the way out in October, where 10,000 of the October 15 calls were sold for $1.70 and 10,000 of the October 10 puts were purchased for $1.80, according to OptionMonster's tracking systems.
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The net debit is just $0.10, which is the risk if the stock finishes between $10 and $15. Above $15 the position has unlimited risk and below $10 it can make highly leveraged gains.
This is clearly a bet that AN cannot hold this level and will be at least another 20 percent lower from here over the next seven months.
Chris McKhann is an analyst and writer for OptionMonster.