Sarah Wasserman (swasserman@sir-inc.com) Lowe's Companies, Inc. (LOW) has seen a surge in option activity today, with roughly 32,000 contracts crossing the tape so far -- already six times the retailer's expected daily option volume. However, upon closer inspection, it seems that one option trader is actually responsible for the bulk of today's volume.
Early this morning, 14,000 January 2011 22.50 calls crossed the tape at the ask price, while a symmetrical block of January 2011 20 puts changed hands at the bid price. In other words, it appears that we're looking at a synthetic long stock position with split strikes.
This strategy differs from its same-strike sibling in that it offers a little more downside protection to the trader. Rather than buying a call and selling a put with the same strike, the trader sells a put at a lower strike than the purchased call, which essentially gives the stock a little more room to move. In today's example, the trader is hoping that LOW will muscle above $22.50 by January.
Recently, the $22.50 level has emerged as a formidable technical foe for LOW. Despite multiple attempts during the past few weeks, the stock has been unable to close a session above $22.50 since Oct. 11.
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