Amdocs attracts range-bound trade

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Amdocs reports earnings Wednesday afternoon, and one investor is selling volatility.

The trade consisted of a short sale in the January 30 puts and the January 30 calls. The puts brought in about $1.37 while the calls priced for $1.88, resulting in a net credit of $3.25. More than 1,400 contracts changed hands in both strikes.

DOX DOX rose 0.33 percent to $30.52 in afternoon trading. The provider of customer-service software fell on July 22, when management issued lukewarm guidance. It continued falling into late August and has rallied about 18 percent since then.

The shares have now returned to about the same level where they rolled over in late May, and today's option trader apparently thinks they will remain in this range.

The option strategy, known as a short straddle, will make money as long as DOX remains between about $26.75 and $33.25. It will also benefit from lower implied volatility, which would reduce the premiums on the contracts sold short. (See our Education section)

Implied volatility in DOX has been hovering at 28 percent since August, despite realized volatility falling to about 17 percent. Implied volatility often falls after companies report earnings, a trend the short straddle is apparently trying to exploit.

The trade pushed total options volume in DOX to 4 times greater than average.

(Chart courtesy of tradeMONSTER)




The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Options

Referenced Stocks: DOX

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