AOL has been trending lower, and the bears are looking for more.
optionMONSTER's Depth Charge tracking system detected the purchase
of an equal number of January 12.50 puts for $1 and the sale of
9,250 January 16 calls for $1.05. Volume was more than 7 times open
interest in both strikes.
The trade resulted in a credit of $0.05 and will profit from
downside in the Internet stock. The main difference between the
strategy and shorting AOL is that the options will track the
performance of the shares less closely as
and expire worthless if the stock remains between the two strike
Investors who are long underlying equity often use this approach as
a protective hedge because it protects against a collapse while
limiting their gains in the case of a big rally. Such a position is
known as a
. (See our
AOL rose 1.35 percent to $14.27 yesterday. It spent the first half
of the year around the $19 level but plunged after the company
reported an unexpected loss on Aug. 9. Revenue also lagged amid
weak advertising sales.
Shares traded as low as $10.06 the next day. Yesterday's option
trader may be worried about a retest of that level.
Overall option volume was 12 times greater than average in
yesterday's session, according to the Depth Charge.
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