COH – Coach, Inc. – The retailer of high-end handbags and accessories realized a more than 5.05% increase in the price of its shares today to pin down an intraday high of $37.66. Despite the substantial rally in Coach’s shares options traders are purchasing put options on the stock. Put buying has been a popular trading strategy as of late and has occurred repeatedly in recent weeks. It looks like the majority of today’s options action on Coach is the work of longer-term pessimists wary of the potential for shares to reverse course ahead of February expiration. Put players picked up roughly 5,300 puts at the February 2011 $37 strike for premium of $4.00 each. Investors buying these contracts may be building up downside protection on a long position in the underlying stock. In this scenario, protection kicks in if Coach’s shares slip beneath the effective breakeven price of $33.00 ahead of expiration day in February. Alternatively, the put purchasers could be initiating outright bearish bets because they expect the handbag maker’s shares to trade at a significantly lower price in the next six months. Investors buying puts outright stand ready to make money if shares of the underlying plunge 12.4% lower to trade below $33.00 by expiration.
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Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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