On Friday shares of Navistar closed up 11% to cap off an impressive 46% gain on the week. Thursday the truck and engine company reported fourth quarter earnings loss that was not as bad as expected. The company also announced a management shake-up and declared “our return to profitability is in clear sight.” Carl Icahn, who owns 11.8 million shares and has been lobbying for a management change, has been quick to endorse former COO and incoming CEO Troy Clarke, and the stock was upgraded to “overweight” at JPM and reiterated as a buy at Jefferies. However, option trading Friday was less optimistic, with the biggest trade being the purchase of 1,000 July 30/20 put spreads for a net debit of $2.00. This is a bearish trade that will profit if the stock is below 28.00, 20% lower, at July expiration.

This trade was most likely done to protect gains from a long stock position instead of as an outright bearish bet. After a 45% rally in a week, protecting gains with a fixed risk spread like this is smart. This spread keeps risk/reward on your side and keeps the potential for upside gains in a stock position unlimited while the downside between 20 and 30 is completely mitigated. Analysts have a $5 price target for Navistar, which suggests that it is still inexpensive even after last week’s pop. The key to watch going forward for Navistar will be its market share. Last year the company’s diesel engines were found to violate the EPA’s emissions standards, which lead Navistar to scrap their 15L models and use engines from rival Cummins. Now that the turnaround pace at Navistar is accelerating I will be looking for the company to regain market share from Cummins as it shifts back to being a competitor instead of a customer.