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March 5, 2013  Tue 2:45 AM CT

BPI: SEE CHART GET CHAIN FIND STRATEGIES
Someone apparently thinks that options are too cheap in Bridgepoint Education.

optionMONSTER's tracking programs detected a surge of volume in the San Diego-based college operator, which has been trading sideways after a jarring drop last summer. Blocks of 2,500 contracts each were purchased in the August 10 puts for $2.05 and the August 12.50 calls for $1.30. Equal amounts were sold at the same time in the May 10 puts and the May 12.50 calls for $1 and $0.40, respectively.

It appears the investor is using a so-called short strangle trade, which he or she previously opened in the May contracts. The trader is now closing that position and rolling it three months forward in time. It cost an additional $1.95 to make the adjustment.

Traders buy strangles when they think a stock is going to make a sharp move higher or lower, or when they expect other market participants to drive up the value of a company's options. In the case of BPI, they're probably trying to work around its next quarterly earnings release on March 12.

Volatility often falls after such big news events, especially in the nearer-dated options. So rolling out to August will protect them against such a move. (See our Education section)

BPI fell 3.33 percent to $9.88 yesterday. It lost half its value in July and has traded on either side of $10 since. Total option volume was 17.5 times greater than average in the name.
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