Flotek Industries has been going straight up, and one big
investor is hedging.
optionMONSTER's Depth Charge monitoring program detected the
purchase of 20,000 March 22.50 puts for $1.80 and the sale of
30,000 March 17.50 puts for $0.50. Volume was more than 60 times
open interest at each strike, indicating that new positions were
The trade was massive for FTK, which normally sees fewer than 300
contracts change hands per session. It cost a net $1.05 per put
contract owned and will inflate to $5 if the provider of
oil-drilling services closes at $17.50 on expiration.
Below that level, the trader is on the hook to buy 1 million shares
for $17.50, so he or she can lose money in the event of a major
selloff. But that's still well below the $23.39 closing price
FTK has already appreciated 92 percent so far this year and is now
back around the same levels where it peaked in 2008. It ended down
0.3 percent despite hitting a new multi-year high of $23.90
intraday, which could make some traders think that it's running out
Yesterday's trade is known as a
put ratio spread
because three contracts were sold for every two bought. The
strategy is often used to protect a winning position because it
dulls the pain of a drop while programming a buy at lower prices.
The trader might want to add around $17.50 anyway because it was a
key consolidation level in May and June. (See our
section for other hedging techniques.)
Puts outnumbered calls in the session by a whopping 46-to-1 ratio,
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.
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