Investing With Options header image ≡ Menu

Just Released: Get Your FREE Iron Condor Trading Toolkit


Click Here to Download

Check Out the Large Option Trade in MCO

MCO has a very interesting chart. After holding below a line of resistance since April, it completed a capitulative bottom back in September, only for a sharp rally back. Since then it has had a strong run, breaking out of that trendline:

Let's also take a look at the long term implied volatility, as that's where we saw the option trade come in:

Source: LiveVolPro

So we see the historical volatility over the past 30 trading days is running at a significant difference with respect to both longer term HV as well as options dated further out in time.

So with that in mind, we saw a very large trade come across the boards in longer term MCO options:

Source: Livevol Pro

Source: Livevol Pro

As the calls were traded at the mid, we don't know if they were bought or sold. But the puts were bought at the ask, so I'm betting that they went out and bought a strangle. About 8500 of these were opened up, against a total open interest of about 2000. The current price for these are 4.00

So a trader came out and bet 3.4MM that there's going to be a larger move in MCO than what the options are pricing in. This is absent of any stock combination; the play gives the trader a delta of about 144k.

This is assuming the calls were bought, not sold. If they were sold, then we're looking at a bearish reversal trade, which may be a hedge against a current stock position.

Either way, I'm watching out for this as there is someone making a bet that there's more vol to come in MCO.

by Steven Place

Steven Place is the founder and head trader at investingwithoptions.com/