Bear takes aim at Lender Processing

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Lender Processing Services is trying to fight its way higher, but one bear wants to pounce.

optionMONSTER's Depth Charge monitoring program detected a surge of activity in the mortgage-service stock, which lost more than half its value between April and October. All the trades occurred in a five-minute span late Friday, suggesting that it was the work of a single large institutional investor.

He or she bought 4,500 March 17 puts for $2.10 and sold an equal number of March 20 calls for $1.75. Similar to shorting the stock, that position will profit from a drop but can lose money if LPS rallies, so the trader also bought 4,500 March 25 calls for $0.60 to hedge the upside risk.

Shortly after, 9,261 December 17 puts were sold for $0.70 and 3,392 December 13 puts were bought for $0.30. Unlike in the March contracts, both of those trades were less than open interest, which suggests that an existing bearish put spread was closed.

The activity resulted in a cost of about $119,000 and stands to earn significant profits if LPS rolls over and heads below $17. It can lose an additional $2.25 million if LPS rallies to $25.

The stock rose 0.48 percent to $18.80 on Friday, and has appreciated by about 35 percent in the last month. It declined along with other financials for most of 2011, but results beat expectations the two last times it reported in July and October. (See our new researchLAB service for more)

The stock is now back to the same level where it bounced at the darkest days of the mortgage crisis in November 2008. Some chart watchers may now be looking for that support to become resistance, followed by new lows, which may be the rationale behind last week's bearish trade.

Overall option volume was more than 80 times greater than average in the session, according to the Depth Charge.



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.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: LPS

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