Leveraged Strategy Pays Off in Avon

| About: Avon Products, (AVP)

By David Russell

Avon Products (NYSE:AVP) leapt on a strong earnings report today, and one investor made a killing by using leverage through options.

On April 20, our Heat Seeker monitoring system detected the sale of 3,000 January 25 puts and the purchase of 3,000 January 30 calls. The trade cost a net $0.45 and was designed to amplify moves in the slow-moving cosmetics stock.

AVP has climbed above 8.8 percent since then, but the options position is now worth about $2.10 -- a gain of more than 350 percent. Other investors who bought the May 29 calls for $0.70 are looking at a profit of about 200 percent.

Most of the upside came today when AVP reported better-than-expected first-quarter earnings and revenue as profit margins expanded. The company, which has a heavy exposure to Latin America, also benefited from the weaker dollar.

The news drove AVP higher by 5.41 percent to $31.17 in late morning trading. Option activity remains bullish in the name today, calls outnumbering puts by almost 2 to 1, according to the Heat Seeker.