Someone fears there may be more downside in Rackspace Hosting.
optionMONSTER's Depth Charge tracking program detected the purchase
of 2,000 May 47.50 puts for $1.92 and the sale of 4,000 May 45 puts
for $1.09. Volume was more than 11 times open interest at both
strikes, indicating that new positions were initiated.
The trader collected a credit of $0.26 and stands to earn a maximum
$2.50 if the cloud-computing stock closes at $47.50 on expiration.
Below that level they will be forced to buy shares.
Known as a ratio spread, the trade is designed to leverage a move
to a specific level. Selling twice as many contracts lowers the
cost, but it also creates the risk of losses if the stock moves too
far in the intended direction. (See the discussion of
RAX fell 0.18 percent to $51.14 yesterday, and is down 34 percent
from its all-time highs earlier this year. Much of that drop came
after quarterly revenue missed expectations on Feb. 12.
Monday's trader may own shares in the company and worry they will
fall further. The ratio spread will protect them against that $2.50
of downside, while also programming a buy order at the lower end of
the range. That $45 level was resistance several times in 2011 and
2012, so traders may now expect it to provide support.
Total option volume was almost twice the daily average in RAX,
according to Depth Charge. Puts outnumbered calls by more than 4 to
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