Bearish trade in Blue Coat Systems-11/06/2009

Blue Coat Systems ripped higher by 15 percent yesterday, and now one investor is positioning for a pullback.

optionMONSTER's Depth Charge tracking program detected the purchase of 2,500 December 25 puts for $1.90 and the sale of 5,000 December 22.50 puts for $0.85. Volume was more than nine times open interest in both strikes.

BCSI is down 1.7 percent to $24.86 in morning trading. The maker of networking software surged yesterday after announcing a plan a plan to move jobs to India and fire workers in the U.S. and Europe. The stock has more than tripled this year and now stands near its highest price in 17 months.

Today's so-called ratio trade is designed to leverage a small drop in the shares. By selling more puts than those bought, the investor generated extra income and reduced the debit to just $0.20. The trade will earn a maximum profit of 1,150 percent if closes at $22.50 on December expiration.

Because of the additional puts that were sold, the profits would erode below that level and turn to losses at $20. The strategy may have been implemented by an investor looking to hedge ownership of the stock who's also willing to buy more shares for $22.50.

The next scheduled event that could serve as a potential catalyst for BCSI is the release of fiscal second-quarter results after the bell on Nov. 24.

Overall options volume in the name is 10 times greater than average today, with puts accounting for 91 percent of the activity.

(Chart courtesy of tradeMONSTER)

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