Adtran is showing signs of a potential bearish reversal, and one
investor is positioning for a drop.
optionMONSTER's Depth Charge tracking system detected the purchase
of about 2,500 July 25 puts for $0.35 to $0.40 and the sale of a
matching number of August 30 calls for $0.40. The trade resulted in
a small credit and pushed total options volume in the networking
stock to 15 times more than average.
ADTN fell 1.20 percent to $27.24 on Friday and has spent the
last four months consolidating between $25 and $30. Shares of the
networking technology company gapped to a four-year high of $29.92
in mid-April after issuing a strong earnings report and providing a
bullish second-quarter forecast.
However, it gapped lower six sessions later and since then has
been unable to regain those levels. Some traders may interpret the
price action as an "island reversal" chart pattern and expect the
next move to be lower.
Friday's option trade is designed to leverage such a move and
will generate profit if ADTN closes below $25 by July 16. The
investor took the unusual step of selling calls that expire one
month later and is therefore at risk of losing money if the shares
rally above $30 by August expiration.
Selling longer-dated calls allowed the trader receive a higher
premium to finance the purchase of the puts. The decision reflects
a belief the shares will push lower in the near term and stay
The date of the next earnings release hasn't yet been announced
but will probably be soon because the last one was on April 14.
(Chart courtesy of
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