Americans keep buying trucks and SUVs. Now an options trader is looking for the trend to continue.
Fiat Chrysler (FCAU) ripped higher in 2017 by focusing on vehicles like Ram pickups and Jeep Wranglers. The turnaround bounce faded last year as investors took profits, but the stock has been rising again since the start of January.
Today an options trader rolled a short-put position higher. He or she earned income in the process and is shouldering significant downside risk in the event of a drop:
- 70,000 February 15 puts were bought for $0.20. Volume was below open interest, which indicates an existing position was closed.
- 70,000 February 16.50 puts were sold for $0.62 in a new opening trade.
- The transaction resulted in a net credit of $0.42. It was among the largest trades in the options market today.
Remember, puts fix the price where a stock can be sold. Owning them is similar to shorting a stock. Selling them is similar to writing insurance: It generates income on the hope that shares remain above a certain level.
Today’s trade is noteworthy because the investor raised his or her risk point by $1.50. That suggests they have significant confidence in the automaker holding its ground through expiration next month. See our Knowledge Center.
FCAU fell 1.67 percent to $16.50 in late morning trading. Its results have mostly beaten estimates thanks to U.S. demand for its gas-guzzling vehicles, although overseas operations have struggled.
Overall options volume is about quadruple the company’s daily average over the last month.