Options Trading News

May 14, 2012  Mon 2:47 AM CT

One investor is using options to manage a trade in NxStage Medical.

Our tracking systems detected the sale of 3,300 December 15 puts for about $1.52 against no previous open interest. He or she is now obligated to buy shares for $15 if they drop to that level.

The benefit of the strategy is that if the stock never goes that low, the trader simply keeps the premium and the puts will expire worthless. Below $15, the trader will be assigned stock, but the effective entry price would be $13.48. That was major consolidation range in 2007 and mid-2010, so the shares might draw buyers there again.

Selling the puts established that entry price now eliminated the need to time the purchase. (See our Education section for more on how options can be used to manage such trades.)

NXTM fell 2.54 percent to $15.34 on Friday. It rallied about 400 percent between mid-2009 and early 2011 but has been drifting lower since. The company's devices are used for treating patients with conditions such as kidney failure.

The put sale pushed total option volume in the stock to more than 100 times average levels.
Share this article with your friends


Premium Services

Education & Strategy

The art of trading

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.

View more education articles »