Beer, Housing and Tech: Wednesday Options Recap

hand holding a mug of beer toasting

Yesterday was Fed day, but some noteworthy options trades also appeared.

Constellation Brands (STZ) was the busiest of the bunch, with large and complex bullish strategy taking shape in the hours before lunch. Traders focused on three different strikes in the distributor of Corona beer, selling two contracts to finance a single long upside position:

  • 15,000 July 210 puts, sold for about $3.20.
  • 15,000 July 230 calls, bought for $7.80.
  • 15,000 July 245 calls, sold for $2.60.

Owning calls fixes the price where a security can be purchased. Writing them generates income and forces the trader to deliver shares if a certain price is reached. Combining them into a spread essentially programs entries and exits in one fell swoop, with a low enough cost basis to generate significant leverage if they’re right about direction. (See our Knowledge Center.)

Wednesday’s trade added the step of selling puts, which creates potentially significant downside risk if STZ falls below $210. The extra income lowered the cost even further to $2. All told, they stand to collect $15 from the stock closing at or above $245 on expiration, but could also be forced to pony up more money below $210.

STZ closed down 1.25 percent to $226.80. The next earnings report is due in late June, so the complex three-way strategy is apparently looking for a strong set of numbers. By the way, STZ is one of the better-performing members of the highly bearish consumer-staple sector. (See our breakdown of the group for more.)

Constellation Brands (STZ) chart
Constellation Brands (STZ) chart

Next, homebuilder D.R. Horton (DHI) had some good-ol’-fashioned bearish put buying. An even 5,200 of the June 43s crossed the tape for $1.36 less than half an hour after the Fed’s policy statement. DHI fell 1.42 percent to $43.61 and is trying to stay above its 200-day moving average.

There was also a bullish call spread in Pivotal Software (PVTL):

  • 2,000 June 17.50 calls bought for $2.10
  • 2,000 June 20 calls sold for $0.95.
  • Not huge but an interesting start in a cloud-computing firm that just went public last month.

The net cost was $1.15, with the potential to more than double in value from a move to $20. PVTL slipped 0.55 percent to $18.20.

This post is for education purposes only and should not be interpreted as a trade recommendation. Options trading may not be suitable for all investors.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.