Trading is cautious as market churns
David Russell | email@example.com
optionMONSTER's trade scanners show net put buying across the broader market, which reflects potential worries about a pullback. Calls are also getting sold in general, which means that investors don't think rallies will hold.
There are also downside trades in individual names. Best Buy, for instance, entered the session up more than 150 percent on the year, but today's activity was guarding against a drop. Our Depth Charge system detected the purchase of 2,600 September 30 puts for $1.56, while similar numbers of contracts were sold in the September 28 puts for $0.78 and the September 33 calls for $0.83.
The strategy generated a credit of $0.05 and combines elements of bearish put spread with a covered call. It will expand to $2 on a drop to $28 while force the investor to sell his or her shares if the electronics chain closes at or above $33 on expiration--near a potentially key resistance level from June 2011. BBY is up 1.77 percent to $30.98.
Semiconductor-equipment stock ASML has also been running like a horse, with a 40 percent year-to-date gain under its belt when the session began. This time, a trader implemented a straight put spread, buying 3,000 September 87.50 puts for $1.65 and selling an equal number of September 80 puts for $0.45. The net cost was $1.20, with profit of 625 percent on a drop to $80. Unlike the BBY trade, the trader keeps unlimited upside in the stock. ASML is up 0.52 percent to $91.97.
Other names see outright call selling. Rex Energy, for instance, rallied 1.21 percent to $21.71 and is sitting at its highest level in almost five years. Traders responded by dumping 2,400 December 25 calls on the market for $0.65. Heart-device maker Thoratec saw similar action, with 3,000 September 40 calls sold for $0.60. THOR, which is near potential support after a sharp rally in the last month, is up 2.23 percent to $36.60. (See related story)
In another cautious trade, a block of 5,000 September 22 puts in Cheniere Energy were sold for $0.19 and rolled to the January 21 strike for a net cost of $0.45. The contracts are likely being used to hedge a position in the natural-gas tanker stock. LNG is up 1.52 percent to $28.68.(See related story)