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The Blackstone Group L.P. (BX): Put Seller Skeptical of Pullback

A huge block was sold to open at The Blackstone Group L.P.'s April 32 put

by 3/18/2014 2:18 PM
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Option Brief: The Blackstone Group L.P. (NYSE:BX) put volume has gone through the roof today, registering at six times the normal intraday rate. For the sake of comparison, roughly 22,000 contracts are on the tape, compared to 7,221 calls. Interestingly, a single trade accounts for nearly all of the put volume.

Digging deeper, a block of nearly 20,500 April 32 puts changed hands at around 11:30 a.m. ET. -- below the bid price, suggesting the contracts were sold. Also, with fewer than 1,200 contracts in open interest at the out-of-the-money strike, it's safe to conclude new positions were created -- a theory supported by Trade-Alert.

By selling the puts to open, the big trader expressed confidence that BX -- currently 1.9% higher at $34.11 -- will remain above the 32 strike throughout the next four-plus weeks. Historically speaking, shares of the private equity firm haven't explored territory below $32 since mid-to-late February.

If the stock charts a neutral or bullish course during the next few weeks, the contracts will expire worthless, and the put writer will retain the premium collected as his maximum potential reward. However, if BX slides below the strike price, the seller risks assignment -- in which case he may be on the hook to buy the shares for $32 apiece, no matter how far they've fallen.

Taking a step back, The Blackstone Group L.P. (NYSE:BX) touched a near-seven-year high of $35.39 one week ago, after the company announced plans to purchase a majority stake in cyber-security firm Accuvant. Although the stock has pulled back since then, it's still tacked on more than 67% on a year-over-year basis. Just this morning, the outperforming shares saw their 12-month price target more than doubled (to $42 from $20) at JMP Securities.


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