Trader hopes private-equity firm will rally from support

The world's top private-equity firm popped firmly above $30 on good results last month, and one big trader apparently thinks the stock won’t dip below that level anytime soon.

A large, multi-part options strategy was detected yesterday in Blackstone Group (NYSE: BX), whose investment portfolio ranges from IT providers to auto-body shops and office buildings. Three giant blocks appeared at exactly the same time, combining into the session's largest single transaction:

  • 17,039 September 31 calls were purchased for $1.34, giving the investor the right to buy BX shares for $31 over the next four months -- no matter how high they may be above that price.
  • 17,039 September 35 calls were sold for $0.16, obligating the investor to hand over shares for $35 if they're above that level. (Don't forget, they would already own them $4 lower because of the 31s.)
  • 17,039 September 30 puts were sold for $1.18. Here's the real nail-biter because they're on the hook to buy BX for $30 if it goes below that level. They face potentially sharp losses all the way down to $0, and so must be darn confident BX is on solid ground.

Finding this complex trade hard to follow?  That’s ok - their hopes are simply bullish:

  • Thanks to the calls, they stand to collect $4 if BX rallies to $35 or higher. (Buy for $31, sell for $35.) They'll start making money over $31.
  • Each contract controls 100 shares, so their maximum profit would be $6.8 million. That's 17,039 X 100 X 4.
  • The trade costs nothing upfront, excluding commissions: $1.34 - $0.16 - $1.18 = $0. So they'll break even as long as the stock holds that magic level of $30.
Blackstone (BX) 6-month chart

Source: OptionsHouse by E*TRADE

BX slid 0.29 percent to $30.75 yesterday. Its 14 percent year-to-date gain may look impressive, but almost all of that move occurred in the first week of January. It's gone pretty much nowhere since, so Tuesday's trade means someone is pining for a summer breakout.

The company's already been ringing up profits from earlier investments like Hilton Worldwide (NYSE: HLT) and Invitation Homes (NYSE: INVH), which caused its results to blow past estimates last quarter.1 There were also reports this week that BX may bankroll the headline-grabbing Twenty-First Century Fox (NASDAQ: FOXA) bid for rival Tribune Media (NYSE: TRCO).2

The stock has also been holding above its 50-day moving average for almost two weeks, which some chart watchers may view as a bullish signal.

Bottom line: BX has chopped in a range virtually all year, but now one big trader is looking for a rally in the next few months.


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1. Bank of America Merrill Lynch: A robust quarter and favorable core trends paint an attractive outlook. 4/20/17.

2. Reuters: Twenty-First Century Fox in talks with Blackstone to buy Tribune. 4/30/17.