Riverbed Technologies has been rallying hard since the summer
amid takeover speculation, but now one trader is positioning for a
optionMONSTER's Depth Charge tracking program detected the purchase
of 6,371 January 45 puts for $5.10. At the same time, similar-sized
blocks were sold in the January 39 puts for $2.55 and the January
36 puts for $1.75.
The strategy, known as a bearish "Christmas tree," allowed the
investor to own the January 45 puts for about $0.80, giving him or
her significant leverage on a push to the downside. The position
will earn a maximum profit of 650 percent if RVBD closes between
$36 and $39 on expiration. The gains will erode below that range
and turn to losses if the stock falls though $30.
The Christmas tree resembles a ratio spread because more options
are sold than are purchased. It's different because two strikes are
sold, rather than one.
RVBD climbed 4.95 percent to $46.45 in afternoon trading and is
up 55 percent in the last three months. The provider of networking
devices has been rallying on strong earnings and as investors
speculate that it may be acquired in the wake of Hewlett-Packard's
and Dell's bidding war over 3Par.
The next earnings release is scheduled for after the bell on Oct.
Overall option volume in RVBD is 8 times greater than average
today, with puts accounting for 89 percent of the activity.
(Chart courtesy of tradeMONSTER)
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