Put seller goes with flow on Blue Nile

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Blue Nile is getting crushed today, but some traders apparently think that the move is overdone.

optionMONSTER's monitoring systems detected the sale of more than 5,000 December 22.50 puts against open interest of just 328 contracts. Premiums fell from $1.15 to $1 as the trades crossed, which reflects the strong selling pressure.

NILE is down 30 percent to $34.11 nearing midday after reporting third-quarter earnings of just $0.13 yesterday, missing the $0.18 consensus forecast. The online jewelry retailer also issued weak profit guidance and said CEO Diane Irvine was stepping down.

Strangely, revenue was better than anticipated and is expected to remain strong going forward. Management didn't immediately explain the margin deterioration.

The stock appears to be holding the same level where it bounced in September and October, which could lead some chart watchers to believe that long-term support is in place. That could be the rationale behind today's put selling .

If NILE stays around its current level or even pushes slightly lower, those contracts will quickly lose value and expire worthless. It's a classic example of selling volatility , designed to profit from today's panic spike. (See our Education section)

Overall option volume in NILE is 17 times greater than average so far today.



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: NILE

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