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Big move seen in Commercial Metals

12/6/2011 10:37:00 AM
By: optionMONSTER
Referenced Stocks:CMC

One investor apparently thinks that Commercial Metals isn't done moving yet.

The Texas-based steel stock gapped higher last week after billionaire investor Carl Icahn made a $15-per share hostile takeover bid, and it has been drifting sideways since then. CMC is up 1.49 percent to $14.30.

optionMONSTER's tracking systems detected the purchase of 3,000 January 12 puts for $0.35 and 3,000 January 14 calls for $1. Volume was more than 8 times open interest in both strikes. The strategy resulted in a cost of $1.35 and is designed to profit from a sharp move in the stock.

Given the recent news, the investor may expect Icahn to attempt a higher price after CMC's board rejected the offer. In that case, they would profit from the calls. Alternatively, the trader may expect sellers will hammer the stock lower, which would boost the value of the puts.

Known as a strangle , the trade is a common way that investors use options to bet on increased volatility rather than a move in a specific direction. (See our Education section)

The transaction pushed total option volume in the name to more than twice the daily average.