Renren is facing range-bound strategy

By David Russell,

Shutterstock photo

One investor apparently thinks that Renren is going nowhere.

Our tracking systems detected the sale of 10,000 October 4 puts for $0.52 and the same number of October 5 calls for $0.46. The trade accounted for almost all the option volume in the Chinese social-networking stock yesterday.

The trade resulted in a credit of $0.98, which the investor will keep as a profit if RENN is between $4 and $5 on expiration. Gains will erode outside that range, turning to losses below $3.02 or above $5.98.

RENN climbed 0.88 percent to $4.59 yesterday. It went public for $14 a share in May 2011 and steadily trended lower through the end of last year. The shares have been churning in a range since then, and the option trader is looking for that price action to continue through the autumn.

Known as a short strangle , the trade is an example of a market-neutral strategy designed to make money from the passage of time rather than a directional move. (See our Education section)

Overall option volume was almost twice the average amount in the session.

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: RENN

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