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October 3, 2012  Wed 10:43 AM CT

ADTN: SEE CHART GET CHAIN FIND STRATEGIES
As Adtran trades near three-year lows, one option strategy is betting on further downside in the communication-service provider.

ADTN is down 1.05 percent to $16.93 after falling to $16.30 earlier this morning, its lowest level since April 2008. The shares have been stair-stepping down from a 52-week high just below $39 set in late February.

A trader bought 4,000 October 18 puts for the ask price of $1.80, according to optionMONSTER's Depth Charge system. More than 5,400 of those puts changed hands in total against open interest of 307 in the strike at the start of the day, volume that indicates new activity.

Minutes earlier a block of 2,062 October 21 puts sold for $4.25. A total of 3,062 traded in that strike, below the open interest of 3,526 contracts.

Given that the October 21 puts are well in the money, it appears that the trader is rolling the position down to the lower strike price and doubling the number of options. This provides the opportunity for further gains if shares continue lower while taking some profit off the table. (See our Education section)
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When using the Stock Replacement Strategy, we must remember that in reality, we are doing a STOCK trade. We are just using options. We are replacing the stock position with an option position (long calls).

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