IB Options Brief: Fossil, Inc. (FOSL)

Posted May 7th, 2012 by Caitlin Duffy in Unusual Activity

Bearish Spread Preps For Fossil Pullback

FOSL - Fossil, Inc.
A sizable bearish spread initiated in watchmaker, Fossil, Inc., this morning suggests it may be the right time to pick up some downside protection on the stock ahead of the Companyís first-quarter earnings report due out Tuesday before the open. Shares in Fossil are currently down 1.15% at $127.71 as of 11:15 am in New York.

The ratio put spread could be an outright bearish stance on the stock, or may be a hedge to protect the value of a long position in the underlying. Shares in Fossil are up big time year-to-date, having soared approximately 60.0% in the first four months of the year. Downside protection to lock in some of the stockís gains may prove a prudent move should a disappointing report on Tuesday morning send shares sharply lower.

It looks like one trader purchased 1,125 puts at the May $120 strike for a premium of $3.80 each and sold 2,250 puts at the lower May $105 strike at a premium of $0.90 apiece. Net premium paid to establish the spread amounts to $2.00 per contract, with profits ñ or downside protection ñ available in the event that shares drop 7.6% to breach the effective breakeven price of $118.00.

Maximum potential profits of $13.00 accrue to the downside if the watchmakerís shares plunge 17.8% to settle at $105.00 at expiration in less than two weeks. Fossilís shares last traded below $105.00 back in February.

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