Caution reigns before Veeco earnings

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One trader is apparently nervous ahead of quarterly results by LED company Veeco Instruments tonight.

optionMONSTER's Depth Charge tracking system detected the purchase of about 2,000 August 29 puts for roughly $1.09 and the sale of an equal number of August 33 calls for $0.96. Volume was more than 14 times the previous open interest in each strike, so this is new activity.

The trade cost $0.13 and will make money if the manufacturer of light-emitting diodes falls below $28.87 over the next 3-1/2 weeks. It also obligates the investor to sell shares above $33, so he or she is probably using it to protect a long position in the name ahead of this evening's potentially big earnings news.

Known as a collar , the trade is a common hedging strategy that uses the income from selling calls to finance put protection. If done without owning the equity it's similar to shorting stock, with similar upside risk.

VECO began the year by rallying more than 60 percent between early January and mid-May, but it has been trapped in a range since then. Shares fell 1.98 percent to $30.76 yesterday.

Overall option volume was 10 times greater than average in the session, according to the Depth Charge.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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


This article appears in: Investing , Options

Referenced Stocks: VECO

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