One investor wants to be long Microchip Technology, which has
been trending lower since mid-January.
optionMONSTER's Heat Seeker monitoring system detected the purchase
of about 1,250 October 38 calls for $0.55 and the sale of an equal
number of October 30 puts for $1.06. Volume was more than twice
open interest at both strikes.
There are two ways that the strategy can profit. The first is
simply from the fact that the
produced a credit of $0.51, which the investor will keep if the
chip maker remains above $30 by expiration. The second way is if
the stock climbs because of the
The position will track movements in the share price less closely
and expire worthless if shares remain between $30 and $38. That's
been its approximate price range since last summer. It will lose
money only below $29.49.
MCHP fell 2.59 percent to $33.79 on Friday. The last two earnings
reports have been unremarkable, and the company announced on
Thursday that it would acquire Standard Microsystems for $939
million in cash.
The option trade is also interesting because
was 28 percent in the puts versus just 22 percent in the calls.
This means that the market is pricing in a greater probability of
downside than upside--a perception the investor exploited by
selling puts. (See our
More than 4,600 contracts traded in the session, almost 9 times the
normal daily average.
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