Sellers expect more pain for Lender Processing Services.
The mortgage-technology stock traded over $30 in March but then
started falling and is now accelerating lower. The last big move
came on June 16, when management issued bearish guidance for the
third time this year. LPS gapped lower on that news, and now the
options activity remains skewed to the downside.
Yesterday 4,748 September 25 puts were sold for $4.90 against
existing open interest. The investor then bought an equal number of
September 17 puts for $1.15, according to our Depth Charge scanner.
The trade appears to be a put roll, with profits taken on the
existing position and some of the money redeployed into the
lower-strike contracts. The investor collected a credit of $3.75
and roughly doubled their gamma. That will result in more leverage
to the share price if it continues lower. (See our Education
The new contracts will also trade at a tighter bid/ask spreads
because they're closer to the money and have lower premiums.
LPS fell 0.68 percent to $20.54. The company provides technology
and analytics to service mortgages. It also carries a potentially
significant debt load and minuscule cash reserves, which could help
drag the shares lower. Another noteworthy fact is that short
interest is less than 10 percent of the float, suggesting that
momentum players haven't yet targeted the name aggressively.
Overall option volume was 11 times greater than average yesterday,
with puts outnumbering calls by more than 220 to 1.
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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