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Silicon Labs attracts bearish formula

Posted
5/24/2012 1:43:00 PM
By: optionMONSTER
Referenced Stocks:SLAB

Silicon Laboratories fell hard last month, and traders are positioning for more downside.

optionMONSTER's Depth Charge monitoring system detected the purchase of more than 4,000 October 35 puts for $3.68 to $4. Volume was almost 16 times open interest in the strike.

SLAB is up 0.56 percent to $34.03 in afternoon trading but has lost more than one-quarter of its value in the last three months. Most of that drop occurred on April 25 after the company said it might exit the market for smart-phone touch controllers because of increased competition.

The shares have been staggering since that selloff, and today's puts were bought near the peak of the session. The trader apparently thinks that they're making a lower high and are now due for another push to the downside.
 
He or she is using in-the-money contracts, which have a strong negative correlation to the stock price. (See our Education section)

Overall option volume in SLAB is more than 20 times greater than average so far today, according to the Depth Charge. Puts outnumber calls by more than 900 to 1.