Rayonier Attracts Unusual Options Trade

by David Russell

An investor implemented an unusual trade on lumber company Rayonier (RYN) Wednesday to eke out income at relatively low risk.

Our tracking systems detected the purchase of 936,000 RYN shares for $41.05. Ten minutes later, 9,360 January 40 calls were sold for $3.40 against open interest of 2,906 contracts.

The covered-call strategy was unusual because the investor sold in-the-money calls as opposed to out of the money calls. The higher premium reduced his or her purchase price in the equity to $37.65 per share, but also capped upside at the strike price if the stock remains above $40 by expiration. That would translate into a 6.2 percent gain.

RYN fell 0.53 percent to $40.91 on the session. The trade is low risk because the investor can only lose money if the shares fall below the $37.65 cost basis. Given the low risk and low return, the strategy may have been implemented with leverage to enhance returns.

The company last reported earnings on July 30 and hasn't yet announced when third-quarter results will be made public.

The transaction drove overall options volume in the name to 35 times greater than average.

(Chart courtesy of tradeMONSTER)

Comments

[Joe Kunkle:]

Is it more likely the trader bought the calls as protection and went short 960K shares. I see the shares traded on an uptick, but for this size of a trade and the liquidity it could easily be a short equity position. I think that would make more sense as a trade....0.56 delta on the calls offers protection, but not perfectly hedged. There does not appear to be much reason to be long shares int his over-valued REIT nearing all time highs.

Oct 01 08:38 AM

[yank:]

Joe:
All well and good except for the part of "overvalued and nearing its all-time high". I don't know what its "all-time" high is but RYN @$39 is trading 20% off its 5-yr high, which was $49.55
Just wanted to put your comment in its proper context. RYN may or may not be overvalued at this point but over the past 50 years timber has produced a return that easily matches or beats the S&P.

Yank


On Oct 01 08:38 AM Joe Kunkle wrote:

> Is it more likely the trader bought the calls as protection and went
> short 960K shares. I see the shares traded on an uptick, but for
> this size of a trade and the liquidity it could easily be a short
> equity position. I think that would make more sense as a trade....0.56
> delta on the calls offers protection, but not perfectly hedged. There
> does not appear to be much reason to be long shares int his over-valued
> REIT nearing all time highs.

Oct 02 09:58 AM

[Joe Kunkle:]

In that context the S&P is 53% it's 5 year highs, so in relative terms RYN would be overvalued (only 20% from highs) when considering comparable valuation metrics to the S&P 500.....


On Oct 02 09:58 AM yank wrote:

> Joe:
> All well and good except for the part of "overvalued and nearing
> its all-time high". I don't know what its "all-time" high is but
> RYN @$39 is trading 20% off its 5-yr high, which was $49.55
> Just wanted to put your comment in its proper context. RYN may or
> may not be overvalued at this point but over the past 50 years timber
> has produced a return that easily matches or beats the S&amp;P.<br/>
>
> Yank

Oct 04 11:15 PM