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April 23, 2014  Wed 3:47 AM CT

RSH: SEE CHART GET CHAIN FIND STRATEGIES
A huge put trade is apparently betting that RadioShack will head to zero.

optionMONSTER's Depth Charge system shows that a block of 48,240 October 1 puts traded for $0.35 yesterday. Open interest in the strike was just 754 contracts before the trade appeared, so it is clearly a new position.

The puts traded on a penny-wide bid/ask spread, so it is difficult to know for certain whether they were bought or sold. But the price action suggests that the contracts were purchased, which would mean that RSH would have to become essentially worthless in coming months to provide a decent payoff.

Those wanting to make a bearish wager on the stock would very likely turn to puts, given the incredible risk that would be involved in short-selling such a low-priced name. The implied volatility of the puts is 132 percent, compared to a 20-day historical volatility of 80 percent, up from around 30 percent a little over a week ago. (See our Education section)

RSH fell 7.59 percent to $1.34 yesterday, its lowest close in at least 20 years. The struggling electronics retailer, which was above $2 just last week, has been trending lower since hitting a 52-week high above $4 in September.
 
Just shy of 100,000 RSH options changed hands yesterday, compared the daily average of 11,173.
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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