Rackspace doesn't compute for bear

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Rackspace Hosting is hitting a new all-time high, but one investor is taking the other side of the trade.

optionMONSTER's Depth Charge monitoring program detected the purchase of 5,000 January 2014 50 puts for $7.90 and the sale of 5,000 January 2014 30 puts for $2.05. Volume was more than 45 times open interest at both strikes.

Known as a bearish put spread , the trade will leverage a major correction in the cloud-computing stock. It cost $5.85 and will earn a maximum profit of 242 percent on a drop to $30--less than half the current share price.

RAX is up 1.94 percent to $63.20 in late morning trading and has advanced more than 40 percent in the last three months. The company, which focuses on small and mid-sized businesses, has been growing at a breakneck pace and has trended steadily higher since early 2009.

Today's bearish trade could be the work of a long-term investor who's made money in the name and now wants protection in case its performance weakens. (See our Education section)

Overall option volume in RAX is 6 times greater than average so far today, with puts outnumbering calls by 17 to 1.



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: RAX

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