NBTY Straddle Raises Questions

NBTY Inc. (NTY) shares moved marginally higher on nearly double their average daily volume after some unusual activity in the option’s market. Traders established a $130,000 straddle position Thursday between the October $30 and $40 strike prices. The trade indicates that at least one options trader believes that there will be significant volatility over the next 57 days. The straddle will be in-the-money if NBTY shares drop below $29.50 or above $40.80.

During the third-quarter, NBTY reported lower profits that beat street expectations. The nutritional supplements manufacturer’s results were hurt by lower gross margins and higher advertising costs. Margins were likely hurt by rising raw material costs thanks to the lack of ability to raise product prices in the short-term. Meanwhile, higher advertising costs were likely necessary in order to maintain sales levels during the troubled times.

There is no new news or upcoming events that suggest any kind of substantial volatility in the near-term. third quarter earnings were reported in July, which suggests that fourth-quarter earnings won’t comeuntil later this year. Meanwhile, there are no new events listed on the company’s website that would suggest any upcoming volatility. As a result, many investors are wondering why the options trader set up the position in the first place.

NBTY is a vertically integrated manufacturer, marketer and retailer of a broad line of nutritional supplements in the United States and around the world. The company markets approximately 22,000 products under numerous brands, including Nature’s Bounty, Vitamin World, Puritan’s Pride, Holland & Barrett, Rexall, Osteo-Bi-Flex, Flex-a-min, Knox, Sundown, MET-Rx, WORLDWIDE Sport Nutrition, American Health, DeTuinen, Le Naturiste, SISU, Solgar and Ester-C.

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