Bloodletting seen in Lender Processing

By David Russell,

Shutterstock photo

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 section)

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.

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

This article appears in: Investing Options
Referenced Stocks: LPS

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