Options Trading News

January 25, 2013  Fri 12:21 PM CT

At least one big investor apparently wants protection on SAP with the German software giant parked at long-term highs.

optionMONSTER's Depth Charge tracking program detected the purchase of more than 3,000 March 80 puts against open interest of 2,179 contracts. Premiums rose from $2.10 to $2.20, with most of the volume pricing at the higher end of that range.

Puts lock in the price where investors can sell shares, so they will appreciate if SAP drops in the next eight weeks. Investors often use the contracts as a hedge on a long position in the stock, insuring them against a pullback without forcing them to sell prematurely. (See our Education section for more on how options can be used to manage risk.)

SAP is up 3.06 percent to $80.90 in afternoon trading and is up more than 30 percent in the last six months. The stock is now hovering around its highest levels since the 2000 tech bubble, which could be leading some traders to fear that it's at risk of a pullback.

Total option volume in the name is quadruple its daily average, with puts dominating the activity.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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