Differing Put Strategies Hit Live Nation and BP
by Chris McKhann | February 24, 2012 1:16 pm
Shares of Live Nation Entertainment (NYSE: LYV[1]) are plummeting today, and its option activity is, not surprisingly, led by puts.
LYV, which operates live-entertainment venues, is down 4.86% to $9.99 following a disappointing earnings report[2] after yesterday’s close. The stock traded as low as $9.45 earlier in the session, taking it back to levels from the beginning of the year, though shares remain well off their 52-week low of $7.14 set in early October.
More than 34,000 LYV options have traded so far today, far outpacing its daily average of fewer than 1,000 contracts. Almost all of that action is in one put spread.
A trader sold 10,497 April 10-strike puts for 90 cents, under the open interest of 11,779 contracts, then bought 20,000 April 7.50-strike puts for 20 cents. The 7.50 puts were more than 20 times the previous open interest at that strike, so at least this part of the trade was a new position.
It could be that this trader is rolling an existing position to a lower strike and doubling its size while taking some profits at the same time. This could also be a new opening backspread[3], which would take in a credit that would be kept if LYV is above $10 at expiration but can profit greatly if shares continue to collapse.
Elsewhere in the options pits, one trader sees a floor beneath BP‘s (NYSE: BP[4]) stock as it holds just below 11-month highs and resistance.
BP is up 0.32% this morning to trade at $47.42. This level has proven to be resistance since the stock fell from its 52-week high of $49.09 last March. Shares are up 50% from their 52-week low set in early October.
Topping the option volume in BP today is the action in the January 2013 42 put. A trader sold 4,000 of these contracts for the bid price of $3. The previous open interest was 2,527, so this is a new opening position.
The put selling[5] is a bet that BP will remain above $42 through expiration. The strategy is a way to profit from a range-bound market and be mildly bullish even if the stock is unable to get through its current resistance level. Short puts profit from time decay[6], though they do have a positive delta[7] as well, meaning that they can also profit from gains in the stock price. (See our Education[8] section.)
optionMONSTER® provides stock market insight, option trade ideas, and options education to meet the needs of do-it-yourself investors. [9]
- LYV: http://studio-5.financialcontent.com/investplace/quote?Symbol=LYV
- disappointing earnings report: http://www.foxbusiness.com/news/2012/02/23/live-nation-4q-loss-narrows-ticket-sales-weaken/
- backspread: http://www.optionmonster.com/news/article.php?page=commentary/in_the_news/when_to_use_a_backspread__37686.html
- BP: http://studio-5.financialcontent.com/investplace/quote?Symbol=BP
- put selling: http://www.optionmonster.com/education/short_puts.php
- time decay: http://www.optionmonster.com/education/options_pricing.php
- positive delta: http://www.optionmonster.com/education/option_greeks.php
- Education: http://www.optionmonster.com/education/
- [Image]: https://ad.doubleclick.net/jump/N5627.271272.INVESTORPLACEMEDIA/B5295285;sz=1x1;ord=1330085234?
Source URL: https://investorplace.com/2012/02/differing-put-strategies-hit-live-nation-and-bp/