Tomahawk, WI 11/2/2011 (StreetBeat) – Polaris Industries (NYSE:PII) has broken a key resistance level, and one investor apparently believes that there is no going back.optionMONSTER's monitoring programs detected the sale of about 2,000 March 62.50 puts for about $6.30 and the purchase of an equal number of March 57.50 puts for $4.40. There was barely any open interest in either strike when Friday's session began.
The trade resulted in a credit of $1.90, which the investor will get to keep if PII closes above $62.50 on expiration. The gains will erode below that level and turn to losses under $60.60. The pain will then stop at $57.50--meaning the position stands to lose a maximum of $3.10.
The strategy is known as a put credit spread and is a more complicated version of selling puts to earn income. Its benefit is that is provides protection against a major drop but also generates less income. (See our Education section)
PII fell 1.99 percent to $62.71 on Friday but is up more than 20 percent this month. The latest catalyst came on Oct. 18, when the maker of snowmobiles and off-road vehicles reported better-than-expected profit and raised full-year guidance.
Rival Arctic Cat (Nasdaq:ACAT) reported similar results last week. The companies may be benefiting from rising incomes in rural areas as the economy shifts to agriculture and energy production.
PII is now above the $61.50 level where it peaked July. That could make some chart watchers expect support around that price and help explain Friday's trade.
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