Alcatel-Lucent is rebounding off a key support level, giving one
investor confidence to write an insurance policy on the deeply
depressed communication stock.
optionMONSTER's tracking systems detected the sale of about 4,500
September 2.50 puts for $0.20 against open interest of 795
contracts. The trades pushed overall options volume in the name to
16 times greater than average.
ALU rose 4.15 percent to $2.76 yesterday and is down 14 percent in
the last month. The company reported a wider-than-expected loss on
May 6 amid a shortage of components but said demand was improving.
The shares are rebounding from the same $2.50 level where they
gapped higher on July 30. Selling puts lets the investor earn
premium as long as the level holds as support through expiration.
He or she may also expect implied volatility on the stock to wane
from its current 53 percent level. That's about twice the reading
on the S&P 500, and considerably higher than ALU's normal
realized volatility readings until its recent plunge. Lower implied
volatility will depress the value of the puts sold short.
(Chart courtesy of tradeMONSTER)
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