If at first you don't succeed, sell more puts.
That seems to be the strategy of one investor who thought Puerto
Rican bank Popular would stay above $3. He or she had previously
sold July puts at that strike but yesterday bought back 20,500 of
them for $0.44 and sold 30,000 October 2.50 contracts for $0.20.
BPOP finished unchanged at $2.63 yesterday. The last earnings
release on April 25 showed a big drop in bad-loan provisions, which
pushed earnings above forecasts.
That might have led the put seller to believe that downside was
limited and induced them to write protection. But the shares
nonetheless proceeded to lose 17 percent of their value since the
report, following most other banks downward.
Rolling the position to October saves the trader from being forced
to buy shares at $3 and provides an additional three months for
BPOP to rebound. The trade pushed total option volume in the name
to 15 times greater than average.