Why one large bear is targeting ARM


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One investor is throwing in the towel on ARM Holdings as the chip maker staggers at an old resistance level.

optionMONSTER's Depth Charge monitoring program detected the purchase of 3,000 October 27 puts for $0.35 to $0.40 and the sale of an equal number of October 28 calls for $0.75 to $0.80. Volume was more than triple the open interest in each strike, indicating new activity.

The investor probably owns shares and is using the options as a hedge . He or she is now on the hook to sell the stock for $28 if it's above that level on expiration and has a guaranteed right to sell them for $27 if they go below that price. Including the $0.40 credit earned, however, their maximum price would be $28.40 and their minimum price $27.40. (See our Education section)

ARMH fell 0.21 percent to $27.92 yesterday. Known for its strong supplier relationship with Apple, the British company went on a massive run between early 2009 and 2011, appreciating roughly tenfold in just 24 months. It's been consolidating since then, mostly trading on either side of $28.

The stock fell into the low $20s in the spring as the broader market declined but has rebounded along with the S&P 500 since the summer. Given that it's now back around that same $28 area, some chart watchers could think further upside will be limited, which appears to be the thinking behind yesterday's put buying and call selling .

The trade pushed total option volume to 5 times greater than average in the session, according to the Depth Charge.

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

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