Longer-term protection play on Allstate (NYSE: ALL)

Allstate Corp. (NYSE: ALL) did not announce any news today, but at least one investor seems to be taking a bearish stance on the company and betting on a potential slide in the stock by buying longer-term puts.

ALL shares have gained seven cents to $31.67 so far today, just 2% off its 52-week high of $32.30. This proximity to the stock’s highest level on the year could be the case for the put buying action we saw today. ALL has not announced its next earnings release, but the market expects the report sometime around April 28.

Options action around 11:39 a.m. EST suggests an investor bought 4,000 October 29 puts for roughly $1.50 per contract. Investors who bought these puts will make money at expiration if ALL shares close lower than $27.50 when these October-dated contracts expire. These puts are home to current open interest of zero contracts, indicating investors bought these options to open. Of course, the option traders can close this trade at any point between now and then (for a profit or a loss).

Implied volatility of the October 29 puts is 27%, compared to a 30-day historical volatility of 22%. By opening a free virtual trading account, you can access tools that help evaluate risk/reward dynamics of this trade and other option strategies. Why not manage risk for free?

The put buying we saw today does not necessarily mean investors should run out and sell ALL shares, but keep in mind that at least one investor bought downside protection, and could be calling for at least 13% of downside throughout the next seven months.