Bullish risk reversal in United Technologies (NYSE: UTX)

United Technologies Corp. (NYSE: UTX) did not announce any news today, but the stock is currently down more than 2% on the day. Despite the drop in stock, at least one investor is taking a bullish stance on the company by trading a later-dated risk reversal around midday.

Around 12:10 p.m. EST, an investor sold 10,000 May 55 puts and simultaneously bought the same number of May 80 calls in a bullish risk reversal (also known as a “synthetic long stock” strategy). The May 55 puts are currently up 10 cents on the day, and are home to current open interest of 1,998 contracts, while the 80-strike calls have dropped seven cents on the day and are home to just 1,404 contracts of current open interest. The investor collected 52 cents per spread on this play, which simulates a long stock position.

UTX shares are currently down $1.42 to $66.82, but it’s interesting that at least one investor is calling for later-term upside in the stock without buying shares. Instead, the investor is financing his long call position by selling puts.

The breakeven on this risk reversal is $54.48 to the downside, meaning investors will make money if the stock closes higher than that level at May expiration. Investors retain a profit of 52 cents per spread if UTX shares expire between the breakeven and $80. If the stock soars higher than $80, maximum gain is unlimited.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize this trade.

UTX shares are currently trading roughly 8% off their recent high of $72 in mid-January, but at least one investor took the cheaper route to be bullish and expects new highs throughout the next four months.