Stocks quoted in this article:
Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has been in rally mode for the past 12-months-plus, more than doubling in value in 2013, and adding roughly 242% over the last 52 weeks. One large-scale options trader (who may be a nervous shareholder) refuses to accept the trend as his friend, however, and executed a large bearish spread betting on downside through the rest of the year.
Data from Trade-Alert showed that Monday afternoon, a speculator sold to open 8,250 of the December 65 puts for $3.08 apiece. Simultaneously, he bought to open 4,125 of the December 85 puts for $9.61 each. The net debit for each 2x1 ratio put spread -- consisting of two short puts and one long put -- was $3.45.
The goal for this trader (if he isn't a shareholder) is for GMCR to fall as far as $65 (the sold strike), and then plateau. If GMCR is trading right at $65 at expiration, gains are maximized at $16.55 per spread, or the difference in strike prices, less the net debit paid. The spread will also be profitable between the two breakeven rails: $48.45 (short strike less the maximum potential profit) and $81.55 (long strike less the debit paid).
If the stock keeps rallying, the losses are capped at the net debit paid, or $3.45. If the stock collapses, however, losses are limited to $48.45, in the unlikely event that GMCR drops all the way to zero by expiration on Dec. 20.
As noted, Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) has been sprinting higher of late, and has not traded below the $65 mark since before its earnings-prompted bull gap on May 9. Today, the shares are following the market lower, off 1.6% at $85.04.