Vote of confidence in Alcatel-Lucent

By David Russell,

Shutterstock photo

Alcatel-Lucent is rebounding off a key support level, giving one investor confidence to write an insurance policy on the deeply depressed communication stock.

ALU Chart 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)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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This article appears in: Investing Options
Referenced Stocks: ALU

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