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How the bears are playing Brocade

By: optionMONSTER
Posted: 11/25/2013 12:10:00 PM
Referenced Stocks: BRCD

Brocade Communications surged last week, and now the bears want to knock it down a peg.

optionMONSTER's Depth Charge monitoring system detected the purchase of 2,000 January 9 puts for $0.52 to $0.57. Volume was almost 14 times open interest at the strike, indicating that new positions were initiated.

Puts lock in the price where a stock can be sold, so they increase in value when shares drop. Investors use them to hedge long positions or as a substitute for short selling. (See our Education section)

BRCD is down 2.7 percent to $8.65 in midday trading but is up 7 percent in the last week. The networking-technology company rallied after a strong earnings report on Nov. 18 and touched four-year high two days later, but it now appears to be running out of momentum.

Overall option volume in Brocade is twice its daily average so far in the session, with puts outpacing calls by nearly 2 to 1.