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October 10, 2012  Wed 2:45 AM CT

MDRX: SEE CHART GET CHAIN FIND STRATEGIES
Allscripts Healthcare Solutions has popped, and now one investor fears a drop.

optionMONSTER's Depth Charge monitoring system detected the purchase of 2,500 November 13 puts for $0.80. Volume was more than 4 times previous open interest at the strike, clearly indicating a new position.

This put buying locks in a minimum selling price of $13 through expiration, a contract that will appreciate in value if the stock tanks. If the trader owns shares, he or she is now spared the difficulty of exiting the position and still has the right to profit from a rally. (See our Education section for more on how options can be used to manage risk.)

MDRX fell 2.02 percent to $13.57 yesterday but is up more than 25 percent since late last month. Much of that move occurred on Sept. 28 after Bloomberg reported that the health-care IT company might be acquired in a leveraged buyout.

Since then, the shares have stalled and are now parked at their 200-day moving average. That could be leading some chart watchers to expect a pullback and would help explain yesterday's downside activity.

Overall option volume was triple the daily average yesterday, according to the Depth Charge. Puts accounted for almost two-thirds of the total.
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So far, my articles have taken you through a logical progression of option theory and fundamental concepts of options. As of yet, I have not mentioned a single strategy and for a good reason! The actual application of a strategy should come AFTER you learn about the option product itself.

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