What put sellers are seeing in Tellabs

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Tellabs has been dropping for almost a year, but it's been surprisingly stable amid the recent selloff in the broader market.

optionMONSTER's tracking systems detected the sale of more than 28,000 June 5 puts for $0.30 and $0.35. Volume was 10 times existing open interest in the strike.

The transaction represents a giant bet that the maker of telecommunications gear will hold its ground. If the trader is right, he or she will get to keep the credit earned. If they're wrong, they're on the hook to buy more than 2.8 million shares.

TLAB fell 0.78 percent to $5.06 yesterday. It has lost more than 40 percent of its value in the last 10 months, gapping lower amid weak forecasts in October and January.

The shares have now returned to about the same level where they traded in July 2009, immediately before S&P 500 staged a big rally. Some chart watchers may expect support to form at that level.

Value investors could also think TLAB is now attractive because its enterprise value is less than three times EBITDA--far less than related companies such as Cisco Systems or Juniper Networks.

TLAB climbed immediately after the puts were sold. That probably resulted from purchases by the market marker who had bought the puts and thus needed to hedge an implicitly short position in the name. (See our Education section)

Overall option volume was 40 times greater than average in the stock during yesterday's session.



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

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: TLAB

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