Moody’s Corporation (MCO) is a provider of credit ratings and related research, data and analytical tools, quantitative credit risk measures, risk scoring software, and credit portfolio management solutions and securities pricing software and valuation models.On Wednesday, Feb 10, I reported under Unusual Activity a trader sold 5000 contracts of March 25/28 strangle for net credit of $1.57. Then again yesterday, another batch of 5000 contracts of March strangle was sold. This time 26/27 strike for a net credit of $2.17. Both of these trades were well above the open interest clearly implying the opening positions.
With earnings already behind us and the next report not coming out until 4/29/10, the big money obviously expects MCO to stay between $25 and $28 from now until March expiration.
One way to play this is through the following iron condor:- Buy to open March $30 calls
- Sell to open March $29 calls
- Buy to open March $24 puts
- Sell to open March $25 puts
The trade pays 66.6% profit by March expiration as long as the stock remains between $25 and $29, which is about 7% away on both directions from current price of $27.12.
Another way to play this would be to buy the following butterfly spread:- Buy to open 1x March $24 calls
- Sell to open 2x March $27 calls
- Buy to open 1x March $30 calls
Currently, the butterfly spread is going for net debit of $1.10. The spread pays peak profit of approx 180% if the stock closes at $27 on March expiration. The break even points are $25.1 and $28.9.
I like both trades. The daily chart and both P&L profiles are attached.
Good luck!
