Shares of Medtronic (MDT) took it on the chin Tuesday in response to their most recent earnings report.  The average move for the stock over the last three years was up or down about 2% and the biggest drop over that time period was just over 4%.  Those numbers truly contrast with the recent 8.7% drop.

Midday Monday, someone who had a pretty bearish outlook for MDT shares purchased 2500 MDT Nov 25th 79 Puts for 0.38.  To help pay for those options they also sold 2500 MDT Nov 25th 84 Calls for 0.21 which takes the cost of this trade down to 0.17.  Note on the payoff diagram below that the risk is much greater than the cost of 0.17 if shares had rallied instead of dropped.

mdt-payoff

 

I highlighted a couple of price levels on this payoff diagram.  First when the trade was executed MDT was trading at 81.30.  The more interesting level is today's close of 73.60 which places the long 79 put 5.40 in the money.  Let's just say someone now has a little extra scratch to spend this holiday season....