October 02, 2009 at 16:29 PM EDT
Options Activity Denotes Mood Change for Moody’s Investor
Today’s tickers: MCO, MS, FDX, JCP & IYR MCO  - Credit ratings and research firm, Moody’s Corp., experienced a more than 3.5% decline in shares at times during the trading session. The stock recovered slightly by lunchtime with shares currently off by 2% to $19.92. It appears one investor exchanged approximately 55,000 put options on the ratings company. The first of two transactions looks like profit taking on an existing bearish position, while the second trade indicates the investor may have had a change of heart. The trader originally established a 10,000-lot put spread at the November 28/20 strike prices on June 1, 2009. The bearish spread resulted in an average net cost of 2.78 per contract. Today, the trader closed out the position by selling the November 28 strike puts for 8.50 each, and by simultaneously buying the lower strike puts for 2.55 apiece. Net profits on the transaction amount to about 3.17 per contract for a total of $3,170,000. The investor banked gains on the nearer-term pessimistic options play, but subsequent trading suggests he is now bullish on Moody’s through expiration in January. The investor populated the January contract with a credit put spread. It appears he sold 17,500 puts at the January 24 strike for 5.60 each and bought 17,500 puts at the lower January 16 strike for 1.45 a-pop. The transaction results in a net credit of 4.15 per contract for a grand total of $7,262,500. Maximum retention of the credit is possible if shares of MCO rally 20% from the current price to surpass the $24.00-level by expiration next year. We note that shares of the ratings agency last traded higher than $24.00 on September 17, 2009. – Moody’s Corp. – MS  - The financial services firm jumped onto our ‘most active by options volume’ market scanner after a large-volume put spread was established in the January contract. Shares of the financial services firm are 2% lower today to $29.34. The transaction involved the purchase of 22,500 puts at the January 29 strike for 3.05 apiece, spread against the sale of 22,500 puts at the lower January 22.5 strike for 80 cents each. The net cost of the bearish play amounts to 2.25 per contract. The investor responsible for the trade is likely looking to protect the value of a long position in the underlying stock. Shares of Morgan Stanley must decline 9% from the current price for…
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