Flotek gets massive hedge at highs
David Russell | [email protected]
optionMONSTER's Depth Charge monitoring program detected the purchase of 20,000 March 22.50 puts for $1.80 and the sale of 30,000 March 17.50 puts for $0.50. Volume was more than 60 times open interest at each strike, indicating that new positions were initiated.
The trade was massive for FTK, which normally sees fewer than 300 contracts change hands per session. It cost a net $1.05 per put contract owned and will inflate to $5 if the provider of oil-drilling services closes at $17.50 on expiration.
Below that level, the trader is on the hook to buy 1 million shares for $17.50, so he or she can lose money in the event of a major selloff. But that's still well below the $23.39 closing price yesterday.
FTK has already appreciated 92 percent so far this year and is now back around the same levels where it peaked in 2008. It ended down 0.3 percent despite hitting a new multi-year high of $23.90 intraday, which could make some traders think that it's running out of gas.
Yesterday's trade is known as a put ratio spread because three contracts were sold for every two bought. The strategy is often used to protect a winning position because it dulls the pain of a drop while programming a buy at lower prices. The trader might want to add around $17.50 anyway because it was a key consolidation level in May and June. (See our Education section for other hedging techniques.)
Puts outnumbered calls in the session by a whopping 46-to-1 ratio, according to the Depth Charge.