How Cavium bears are playing earnings

By David Russell,

Shutterstock photo

Cavium Networks has been dropping like a rock, and one bear is looking for even more carnage as earnings loom.

optionMONSTER's Depth Charge tracking system detected the purchase of 3,000 August 34 puts for $1.65 and the sale of an equal number of August 37 puts for $3.30. Volume was below open interest in the 37s but not the 34s, which indicates an existing position was rolled to the lower strike.

The trade produced a credit of $1.65 and let the investor maintain downside exposure to the company, whose chips are used in data networks.

CAVM is down 2.12 percent to $33.76 in midday trading and has lost 22 percent of its value in the last month. It's been showing signs of rolling over since April when it peaked around $47, then made a low high in July before proceeding to crash through its 200-day moving average.

The next big event comes after the bell tomorrow when second-quarter results will be released.

Overall option volume in the stock is almost 4 times greater than average so far today, with puts outnumbering calls by 25 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: CAVM

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