Interesting Strategy in Lubrizol Puts

Aug. 2.11 | About: Berkshire Hathaway (BRK.A)

By Chris McKhann

A large option trader is making an interesting bet on specialty chemical company Lubrizol (LZ).

LZ has traded in a tight range around $135 since mid-March, when shareholders approved the acquisition by Berkshire Hathaway for $135. The transaction is subject to some stipulations, which is apparently what is driving some volatility.

One trader is trying to take advantage of that by selling the August 135 puts. A block of 5,000 of those contracts were sold for $0.50, eclipsing the total daily average of 379 and the open interest at that strike of 20.

The stock hasn't closed above $135 in months and has been trading near $134 for the most part. But the deal should be done in the next one to three months, so this is a bet that shares will trade at or above current levels by that August expiration.