Traders Hedge Their Bets on Winnebago Stock

October 4, 2010 by · Leave a Comment 

Shares of Winnebago Industries Inc. traded relatively unchanged Friday (Oct. 1), closing at $10.47. The stock has been drifting higher over the past nine trading days and is currently trading in a technical uptrend, SmarTrend reported.

The put volume Friday was 1,000 contracts, which is 16 times the average daily volume of 63. Usually high put volume is an indicator that many investors are looking for lower prices in the near future.

What’s a put? Wikipedia has this to say about “puts”:

“A put option (usually just called a “put”) is a financial contract between two parties, the writer (seller) and the buyer of the option. The buyer acquires a short position by purchasing the right to sell the underlying instrument to the seller of the option for a specified price (the strike price) during a specified period of time. If the option buyer exercises their right, the seller is obligated to buy the underlying instrument from them at the agreed upon strike price, regardless of the current market price. In exchange for having this option, the buyer pays the seller or option writer a fee (the option premium).

By providing a guaranteed buyer and price for an underlying instrument (for a specified span of time), put options offer insurance against excessive loss. Similarly, the seller of put options profits by selling options that are not exercised. Such is the case when the ongoing market value of the underlying instrument makes the option unnecessary; i.e. the market value of the instrument remains above the strike price during the option contract period.

Purchasers of put options may also profit from the ability to sell the underlying instrument at an inflated price (relative to the current market value) and repurchase their position at the much reduced current market price.

[Slashdot] [Digg] [Reddit] [Facebook] [Google] [StumbleUpon]