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Option Briefs: Green Mountain Coffee Roasters (GMCR) Bear Bets Big

GMCR spread buyer bets on a collapse

by 8/27/2013 11:28 AM
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.

Profit Loss of Green Mountain Coffee Roasters Inc. put ratio spread

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.


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