Unusual Options Activity: Tempur Sealy International (TPX)

Shares of mattress firm Tempur Sealy International (TPX) have more than doubled in the past year. One trader sees the potential for shares to move far higher in the coming months.

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  • That’s based on the January $60 calls. With 114 days until expiration, over 10,050 contracts traded against an open interest of 2020, a 50-fold rise in volume. The buyer of the calls paid $0.93 to make the trade.

    Shares are currently just under $50, so they would need to rise $10, or another 20 percent higher for the option to move in-the-money. Given the rise in shares over the past year, that’s certainly a possibility.

    Even following the big jump, shares trade at 13 times forward earnings, thanks to massive triple-digit earnings growth of over 500 percent and revenue growth of over 75 percent in the past year in the same time.

    Action to take: Investors may like shares, as the company pays a 0.7 percent dividend right now. While not a large yield, that dividend was recently doubled, and the payout is still quite low.

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  • Traders may like the calls. Shares have held up well with recent volatility, so the strong uptrend in shares is still in place. The January $60 calls are aggressive, but capable of delivering triple-digit returns, even well before expiration.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.