Trader sells puts before RealD earnings

By David Russell,

Shutterstock photo

One investor apparently thinks that the market is too worried about RealD.

optionMONSTER's monitoring programs detected the sale of about 3,900 August 10 puts, most of which priced for $0.85. Volume was almost 4 times the previous open interest in the strike, indicating that this is new activity.

He or she is now obligated to buy shares in the software company for $10 if they close below that level on expiration, but the entry price would be $9.15 including the credit earned. If it stays above $10, the trader will keep the $0.85 as profit and the contracts will expire worthless.

RLD rose 3.10 percent to $11.97 yesterday. The stock lost two-thirds of its value in the second half of 2011 before bottoming out around $8 early this year. It then popped on a strong earnings report in early February and has been moving sideways since.

Yesterday's put sale occurred immediately before the company reported better-than-expected fourth-quarter results. Implied volatility had climbed to 78 percent before the release, versus its historical 34 percent reading. This suggests that options were overpriced, so it made sense to sell puts. (See our Education section)

Some 8,600 contracts traded in the session, more than 80 times the average amount.

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: RLD

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