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Ancestry.com sees hedge before earnings

By: optionMONSTER
Posted: 7/28/2011 1:24:00 PM
Referenced Stocks: ACOM

Ancestry.com reports earnings after the bell tonight, and one investor is guarding against a drop.

optionMONSTER's Depth Charge tracking system detected the purchase of 2,000 August 40 puts for $2.80 and the sale of 2,000 August 35 puts for $0.95. An equal number of August 45 calls were also sold for $1.60. Volume was above open interest in all three strikes, indicating that new positions were opened.

The resulting position cost $0.25 to open and is highly leveraged to the downside, with a maximum profit of 1,900 percent if ACOM closes at or below $35 on expiration. It's probably the work of an investor who owns shares in the family-history service and is trying to hedge their long position.

As a result of the strategy, this trader is now protected to the downside but also will be forced to sell stock for $45 if it rallies to that level.

ACOM is down 1.33 percent to $40.89 this afternoon and has more than doubled in the last year. Its last earnings report on April 28 crushed estimates and management raised guidance, partially fueled by popularity of its service on Apple's mobile devices.

Overall option volume is 14 times greater than average so far today, according to the Depth Charge.