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Bearish strategy in Barnes & Noble

By: optionMONSTER
Posted: 11/25/2013 1:01:00 PM
Referenced Stocks: BKS

Investors are bracing for another lousy quarter from Barnes & Noble tomorrow morning.

optionMONSTER's Depth Charge monitoring program detected the purchase of 4,000 December 16 puts for $1.25. Equal-sized blocks were sold in the December 17 calls for $0.47 and the December 14 puts for $0.32 at the same time. Volume was more than twice open interest at all three strikes, indicating that new positions were initiated.

It cost $0.46 to open this combination trade, which will expand to $2 if the book retailer closes at or below $14 on expiration. The investor is also on the hook to sell shares for $17 if they go over that level, so he or she is probably looking to hedge a long position .

BKS is up 1.64 percent to $16.07 in afternoon trading. It gapped lower after profit missed expectations on Aug. 20 and June 25 but has been trying to rebound since early October.

Today's investor may have bought shares for around $17 before the last earnings report. This way, they can recover most of their capital and remain hedged against further declines. (See our Education section for more on how to redeem losing trades.)

Total option volume is 15 times greater than average so far in the session.