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Looking for Overstock bleeding to end

Posted
8/10/2010 2:45:00 PM
By: optionMONSTER
Referenced Stocks:OSTK

Overstock.com has been falling after a big earnings miss last week, and now one investor is calling a bottom.

OSTK Chart optionMONSTER's tracking systems detected the sale of 4,000 December 15 puts on the Internet-based retailer against open interest of just 94 contracts. Most of the volume priced for $2.15.

OSTK fell 6.61 percent to $14.98 in afternoon trading and is down 24 percent in the last week. The company stunned investors when it announced an unexpected second-quarter loss after the bell on Aug. 5. Revenue missed forecasts by a wide margin, and profitability narrowed.

The drop sent the shares tumbling through their 200-day moving average (purple line on chart) and back to levels last seen in early April.

By selling puts, today's option trader is reflecting a belief that OSTK is done falling. The strategy lets the investor get paid in return for providing protection to other investors. Given the premium earned, he or she will make money as long as the stock closes above $12.85 on expiration. (See our Education section)

At least one analyst raised questions about potentially improper trading before last week's news was made public.

Today's activity pushed total option volume in the name to 7 times greater than average.

(Chart courtesy of tradeMONSTER)