TRADE OF THE DAY: SHORTING THE TRANSPORTS
In a move that rhymes with much of the data we’ve been seeing in the transports & consumer lately, some options traders are turning bearish on the sector:
IYT – iShares Dow Jones Transportation Average Index – Shares of the IYT are currently down 0.5% to $71.43. One option trader appears to have exchanged 19,500 contracts on the ETF to take a bearish stance through expiration in December. The three-legged trade executed on the IYT today exceeds the existing open interest of 13,323 lots by more than 6,000 contracts. The trader likely holds a long position in the underlying shares of the fund because of the placement of the options play. It appears the investor funded a put spread by selling out-of-the-money calls short. He sold 6,500 calls at the December 76 strike for 2.45 apiece. The put spread involved the purchase of 6,500 puts at the December 73 strike for 5.10 each against the sale of 6,500 puts at the lower December 67 strike for 2.70 per contract. The investor is left with a net credit of 5 pennies, which he will ultimately retain in full as long as shares of the IYT remain beneath $76.00 through expiration. Additional gains – or downside protection on a long stock position – have already kicked in for the trader given the breakeven price of $73.00 on the trade. The put spread provides maximum protection if shares decline 6% from the current price to $67.00 by expiration in December.
Source: Interactive Brokers
Interesting, I got a sell signal on my weekly Trans indicator today; none of the other indices did, although they may soon follow; and the trans have not confirmed the Indu recovery highs
If YRCW can raise some capital after their stock move today, CNW and the other LTL stocks are toast. It’s all been share gains driven by aggressive pricing to drive YRCW out of business (see FDX commentary). If that doesn’t come to fruition, they will give back share to YRCW (shippers want to keep them around, they’re just concerned) and price declines will accelerate until capacity exits. ODFL/CNW have bet on YRCW bankruptcy and they appear to be wrong so far (capital raise and union power make YRCW tough to kill). This creates even more of a capacity glut. Plus, CNW is playing acctg games with their pension and “cost cuts” (actually half was from a change in vacation acctg) and trades at a ridiculous multiple (30+).
In short, CNW is the best transport short.
Nice thoughts guys.
Van, I got a sell signal today. Not a short signal, but a move to cash signal….
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