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Option volume accelerated on Avis Budget Group Inc. (CAR) on Tuesday, after analysts at Sidoti initiated coverage on the stock with a "buy" rating, and sector peer Hertz Global Holdings (HTZ) earned an upgrade to "buy" at Northcoast Research. By the closing bell, the car rental concern saw roughly 8,700 calls and 5,000 puts exchanged – about eight times its expected call volume, and more than 10 times its predicted put activity.
The security's May 12.50 strike attracted the most attention, with around 3,500 calls and 3,200 puts crossing the tape. Both call and put open interest at the back-month strike jumped higher overnight, pointing to the addition of new positions. In fact, upon closer inspection, it appears a large portion of the activity was related in the form of a short straddle on CAR.
Yesterday morning, a block of 2,774 May 12.50 puts and an equal amount of May 12.50 calls – both marked "spread" – changed hands for the bid prices of $0.80 and $1.35, respectively, suggesting they were sold. By employing this strategy, the trader is expecting the shares of CAR to settle at the $12.50 level by the time May-dated options expire, rendering the sold options worthless and allowing him to pocket the initial net credit of $2.15 ($0.80 + $1.35) per pair of contracts.
At last check, CAR has added 1.3% to explore the $13.60 level. From a longer-term perspective, the security has bounced between support at the round-number $10 level and resistance in the $14 region, breaching this trading window only once since early August 2009.