Avon Products Options (AVP): Unusual Trading Activity

| April 10, 2012 | 0 Comments

AVP OptionsOptions in door-to-door beauty products company Avon Products (AVP) showed unusually heavy option activity yesterday.

Ever since November 2011, AVP has traded in an extremely tight range between $16 and $19 a share.

Until recently…

On March 29th, option traders started buying call options on this rarely talked about stock.  For the next two days, option activity kept creeping up slowly until it started to pop up on our tracking system.

Clearly something was happening.

You see, on April 2nd, options and stock investors finally got rewarded as AVP skyrocketed from the opening price of $19.30 to a mid-day high of $23.38.

And the best part is… the option buying hasn’t stopped yet.

Just yesterday another 13,000 AVP call contracts were purchased.  More than half were concentrated around the May $23, $24, and $25 strike prices.

The interesting thing about this activity was that these purchases were all straight out buying.  Not one contract was associated with another option or stock position.

Which means, these traders expect Avon Products to keep rising.

So, obviously this begs the question… what the heck is going on here?

As some of you know, Avon Products manufactures and markets beauty products worldwide.

Its product categories include color cosmetics, fragrances, skin care, and personal care.

Avon Products markets their products through direct selling and independent representatives, as well as through distributorships.

Here’s the deal…

Finally, after a week of rumors, Avon Products named Johnson & Johnson’s (JNJ) executive Sherilyn S. McCoy as the new chief executive, effective on April 23rd.

At age 53, Sherilyn McCoy had worked at JNJ for nearly 30 years.  During her tenure at JNJ, she successfully worked her way up from a scientist to one of two vice chairman.

In addition, she had become the highest-ranking woman in the pharmaceutical industry.

Many option traders believe that she’s been hired to clean up the company from some historical problems.  Then to broker a sale of the company to a public or private competitor.

And that’s why option buying is going crazy.

Option traders are pricing in a 75% probability that AVP will have a deal by May at a price above $27 a share.

As an options trader myself, I think these guys usually have a pretty good idea of what’s going on!

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.