Hedge in place on Approach Resources


Shutterstock photo

Approach Resources has made a nice move, and one investor is guarding the gains.

optionMONSTER's monitoring programs detected the purchase of 3,000 January 25 puts for $1.80 and the sale of an equal number of January 22.50 puts for $0.95, resulting in a net cost of $0.85.

Volume was below open interest in the lower-strike contracts, so there are two possible explanations for the activity. One is that an existing position in the 22.50 puts was rolled up to the higher strike, giving the investor more protection against a pullback in the stock.

Alternatively, if both were opening trades, the strategy would be a bearish put spread with the potential to earn a maximum profit of 194 percent if the shale-energy producer closes at or below $22.50 on expiration.  (See our Education section)

AREX is off 1.34 percent to $28.07 in midday trading but is still up more than 75 percent from the start of last month. Given that huge run, today's put buyer may be a shareholder who wants to hedge some of those gains against a potential pullback.

Overall option volume is 9 times greater than average today, with outs outnumbering calls by 98 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

More from optionMONSTER




Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com