Manitowoc is up sharply today on reports that an activist investor will seek to break up the company, but one trader apparently believes that further gains will be limited for the rest of the year.
optionMONSTER systems show that a block of 2,500 December 35 calls was sold for $1.80 today. Open interest in the strike was only 97 contracts before the trade appeared, so it is a new position.
Seconds later, 250,000 shares of MTW were bought in one print for $32.40, so the overall strategy is a covered-call trade. That is bullish up to, but not beyond, the $35 strike price and has a downside cushion from the $1.80 credit of the sold calls. (See my recent column on covered calls in our Advantage Point newsletter.)
Fifteen minutes later, a block of 2,500 July 31 puts traded for $0.30. That too is a new position, but it is unclear whether it was tied to the earlier trade. If it was, this could be a further hedge, producing a collar . If it was sold, they would produce further income at a point where the trader was willing to double the size of the long position in MTW shares.
MTW is up 9.32 percent to $32.48 in midday trading, which would be its highest close since June 2008 if this level holds for the rest of the session. It spiked higher after Relational Investors disclosed that it owns 8.52 percent of the stock in regulatory filings released last night.
News reports indicated that the activist shareholder wants to break up Manitowoc, which manufactures cranes and food-service equipment. The name saw bullish call buying on repeated occasions recently.
More From optionMONSTER