Fortune Brands (FO) is seeing relative weakness and increasing put volume. Shares are down $1.06 to $18.01 and June, Sep, and Jan-10 puts are seeing heavy trading, with most of the volume trading ask-side. 74 percent of the volume (8,300 contracts) traded on the ISE and sentiment data suggest that 93 percent of the puts traded are opening custom buys.
This looks very ominous because some investors are clearly buying the deep out-of-the-money puts. There is no obvious news on the stock today and implied volatility has lifted 5 points to 66. The company manufacturers a number of different products including home furnishings, golf equipment, and spirits. While strong sales of whiskey and bourbon seem likely in the current environment (ha), the other products might be suffering due to the economic slowdown and there could be concerns about profits going forward. The stock might make interesting put spread trades in the September expiration given the poor sentiment in the equity market lately.
Checking with the floor confirms the activity was opening customer put buys in FO and, consequently, very bearish trading. It is the most volume in the stock since 2008 and comes after a 20-day consecutive decline in the stock price. Strategists might consider it as a candidate for bearish trades and possibly look at the September 17.5/10 put spread.
About the Author (Author Profile)
Frederic Ruffy is a well-known trader, writer, and strategist who has spent years educating investors and creating intelligent, insightful, unbiased market observations that are frequently cited by the Wall Street Journal and other financial publications. As senior analyst, Fred provides frequent and regular notes and daily updates for activity of interest.