International Paper Seen Holding Up

Aug.16.10 | About: International Paper (IP)

By David Russell

International Paper (NYSE:IP) has fallen to a key support level, and one investor is confident it will hold its ground.

optionMONSTER's monitoring systems detected the sale of 9,000 January 19 puts for $1.45 against open interest of just 64 contracts. The transaction pushed total options volume in the company, a former member of the Dow Jones Industrial Average, to more than twice the average level.
IP Chart

IP fell 0.41 percent to $21.78 in afternoon trading and is down 10 percent this month. The paper and packaging company has been struggling since July 30, when it reported a weak revenue number and slammed into resistance at its 200-day moving average (purple line on chart).

However, it's stabilized at $21 along with the rest of the market in the last three sessions. That price has been an important support level for the last 11 months, which could make some traders expect it to hold.

Today's put sellers gave themselves additional margin for error by writing contracts at the 19 strike. IP would have to fall about 20 percent by expiration for the trade to lose money.

By selling puts they agree to purchase the shares for $19 if they fall below the strike price. It's a common market-neutral strategy implemented when an investor thinks a stock will hold its ground or is willing to be an owner at a lower price.

Disclosure: No positions