Rackspace Hosting is at a resistance level, and the bears are
ready to pounce.
optionMONSTER's Depth Charge tracking program detected the purchase
of about 3,900 November 37 puts for $3.10 to $3.20 and the sale of
an equal number of December 25 puts for $0.55. Volume was more than
25 times open interest in both strikes.
The trade resulted in a debit of about $2.60 and has the potential
to earn a maximum profit of 360 percent if the data-hosting stock
falls to $25 by Nov. 18 and then holds that level. Known as a
, the strategy uses the additional income from selling longer-dated
contracts to cut its cost basis and thus increase leverage.
The transaction is an example of how investors can turn time into
money using options. (See our
RAX is up 0.42 percent to $37.92 today but has been drifting lower
since early July. It now seems to be stalling around $38, which
could be an important level because it provided support in June.
It's also the same area where the 50-day moving average is now
pushing below the 200-day average, which could lead some chart
watchers to believe that a downtrend is taking shape.
The bearishness has occurred despite RAX beating estimates on the
top and bottom lines the last time it reported earnings on Aug. 4.
The company's next quarterly release is scheduled for Nov. 7.
Overall option volume is 12 times greater than average so far
today, with puts outnumbering calls by 24 to 1.
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