Unusual option activity: Cintas Corp. (CTAS), Dick’s Sporting Goods (DKS), Walgreen Co. (WAG)

CTAS) unusual option activity" src="http://oh-image.s3.amazonaws.com/August/100824CTAS.jpg" border="0" alt="Cintas (CTAS) unusual option activity" width="300" height="200" /> The Hotlist, which scans unusual option volume throughout the session, is available to all OptionsHouse customers, including those who sign up for a virtual trading account. For more information on how the Hotlist works, read this article.

Cintas Corp. CTAS shares have been consolidating above their 50-day simple moving average for the last month or so, and investors may be expecting a continuation of range-bound movement in the stock. The September 25 put was notably active on Monday as a large-scale investor opened a large block of short puts.

Heading into yesterday’s session, this out-of-the-money option had 129 contracts in open interest. Monday’s volume was more than 13,300, indicating that yesterday’s action traded to open. Shortly after noon Eastern Time, two blocks of 6,493 changed hands; one crossed at 25 cents per contract and one traded for 30 cents per contract. The net premium on the tape for this pair of blocks was roughly $357,000 (12,986 contracts * 100 * 27.5 cents).

If these puts were sold to open, the investor will keep the premium collected at expiration if the shares are still above the 25 strike. Below breakeven of $24.725, losses are unlimited down to zero. From its current perch of $26.13, CTAS would have to lose about 5.7% before September 17 in order to put the short put in losing territory.

Put selling is generally regarded as a moderately bullish strategy as it is generally executed with out-of-the-money options. In sum, someone likely thinks CTAS will stay above $25 through mid-September. (Of course, a put seller can try to exit a trade at any time before expiration).

Also on the Hotlist in Monday’s session were a couple of retail names – Dick’s Sporting Goods DKS and Walgreen Co. WAG. Both names have seen notably heavy volume in out-of-the-money, front-month put strikes. Remember that yesterday was the first day September options are the front-month series, so there was a lot of adjustment taking place among both professional and retail traders.

The Walgreen September 27 put saw 20,050 contracts trade versus open interest of 1,280. A block of 19,465 contracts traded for 18 cents apiece about an hour into the trading day. These traded at the bid price, which may indicate they were also sold to open. These puts traded lower on the day than their delta would suggest, which also could mean selling pressure drove the price lower.

Meanwhile, DKS shares saw 10,023 September 25 puts trade on Monday versus open interest of 1,556. A block of 9,556 hit the tape at 11:34 a.m., trading at the mid price of 55 cents per contract (more than $525,000 for the lot size). These contracts traded electronically, making it harder to determine whether buyers or sellers initiated the trade.

If traded on the buy side, put sellers risk 100% of the premium paid but have unlimited profit potential down to the zero mark. If initiated by sellers, the puts have a maximum profit of the credit collected (if DKS is above 25 at expiration). Losses are theoretically unlimited from the breakeven of $24.45 down to zero should DKS collapse by September expiration.

Photo Credit: bradleygee

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