Market News

June 14, 2013  Fri 3:47 AM CT

Traders are banking on second-half strength in Citrix Systems.

The maker of cloud-computing software has been clinging to the $62 level since cratering on a poor earnings report in late April. Management blamed the miss on big customers delaying orders.

Rival VMware has followed a similar pattern but saw upside call buying two weeks ago. Yesterday, the option action hit in CTXS as investors sold 2,500 July 62.50 puts for $3 and bought 2,500 July 55 puts for $0.55. Volume was more than quadruple open interest at each strike, indicating that new positions were initiated.

Selling puts lets the investor earn income from shares closing above a certain level on expiration, in this case $62.50. Owning puts at the lower strike hedges against a major drop, in this case below $55. (See our Education section for more on credit spreads such as this.)

CTXS rose 0.02 percent to $61.96 yesterday. The credit spread will earn its maximum profit of $2.45 if the shares climb just anywhere above $62.50 five weeks from now. The trader will be assigned shares below that level, which he or she may want to do anyway if they already think it's near a bottom. Including the credit earned, their entry price would be $60.05.

Total option volume was quadruple the daily average in the session.
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