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April 19, 2013  Fri 9:38 AM CT

RAX: SEE CHART GET CHAIN FIND STRATEGIES
Rackspace has lost nearly half its market value in the last three months, but one trader apparently believes that the bleeding is coming to an end.

optionMONSTER's tracking systems detected the sale of 2,500 May 42.50 puts in one print for $1.95. The volume was above the strike's open interest before the session began, indicating that this is a new position.

The put seller is looking for RAX to stay above $42.50 through expiration in mid-May. If the stock falls below that level, the trader will be on the hook to buy shares for an effective price of $40.55 when the $1.95 credit from the put sale is factored in. (See our Education section)

RAX is down 0.87 percent to $44.46 this morning, down about 45 percent from its all-time high of $81.36 reached in January. The cloud-computing services company gapped down on Feb. 12 after missing quarterly revenue estimates and has not yet scheduled its next earnings report.

Barely an hour into the trading day, total option volume in the name is already 60 percent higher than its full-session average.
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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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