Bears on Clearwire's wavelength

By David Russell,

Shutterstock photo

Clearwire plunged last week amid concerns of a cash-crunch, and one investor is looking for the next shoe to drop. CLWR

optionMONSTER's Depth Charge tracking system detected the purchase of 5,000 June 5 puts for $0.70 and the sale of 10,000 June 4 puts for $0.30. Volume was more than 7 times open interest in both strikes.

CLWR rose 2.32 percent to $6.17 in morning trading. The high-speed wireless data company issued $1.33 billion of debt on Thursday. Management also said it might sell off spectrum or bring in new investors to bolster liquidity.

The news, which is apparently making investors worry about more capital being raised, has caused the stock to fall to the bottom of its recent trading range. If it consolidates here, some chart watchers may expect support to break and new lows to follow.

Today's option trade will earn a maximum profit of 900 percent if CLWR closes at $4 on expiration. Gains will erode below that level and turn to losses below $3.

The strategy is known as a ratio spread because the investor sold twice as many puts as he or she bought. That reduced their cost basis to just $0.10, but also creates the risk of further losses below the lower strike.

Overall options volume in the stock is 24 times greater than average so far today, with puts accounting for 98 percent of the activity.

(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 Nasdaq, Inc.

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This article appears in: Investing Options
Referenced Stocks: CLWR

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