What the bears are seeing in Altera

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Altera has held its ground better than most chip makers, but now the bears are looking for a correction.

optionMONSTER's Depth Charge tracking system detected the purchase of about 3,000 May 40 puts for $0.93 and the sale of an equal number of May 35 puts for $0.18. Volume was more than twice open interest in both strikes.

The trade resulted in a cost of $0.75 and will earn a maximum profit of 566 percent if ALTR closes at or below $35 on expiration. This trade, a put spread, uses income from selling contracts that are further out of the money to buy options that are closer to the money.

It increases leverage by lowering the cost basis, but also caps the profit if the stock falls more than expected. (See our Education section)

ALTR is down 1.68 percent to $42.77 in morning trading. The shares have been trending steadily higher since late 2008, riding a wave of demand for the company's programmable chips, and are now around their highest level since the tech bubble burst more than a decade ago.

Unlike most semiconductor names, ALTR has managed to remain near its highs in the last two months. However, today's downside trade reflects a belief that the stock will succumb to the broader bearishness that's been sweeping the sector.

Puts outnumber calls by 28 to 1 so far today, which reflects the negative sentiment.



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: ALTR

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