Sherwin-Williams reports earnings before the bell today, and one trader is looking for a big move.
OptionMonster's tracking programs detected the purchase of about 1,000 February 60 calls for $1.40 and 1,000 February 60 puts for $2.50, resulting in a net cost of $3.90. The activity came amid a busy session for the paint maker, during which options volume surged to 10 times the average level.
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Sherwin-Williams rose 1.59 percent to $58.92 yesterday. The stock gapped lower after its last earnings report on Oct. 20, when management forecast lower-than-expected fourth-quarter results. It then rallied back above $60 but has lost most of those gains so far this month.
The options trade, known as a "strangle," allows the investor to profit from a big move in the stock. It will make money if Sherwin-Williams rallies above $63.90 or falls below $56.10 by expiration.
The strategy also benefits from the options being relatively inexpensive because of the stock's low implied volatility, which is now about 26 percent, down from 32 percent in early October.
Other investors purchased about 1,100 February 55 puts for $0.55 against open interest of 162 contracts, likely to hedge against a sharp drop following earnings.
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David Russell is a reporter and writer for OptionMonster.