A large investor is looking to milk income from Arm Holdings, which has been trapped in a range all year.
optionMONSTER's monitoring systems detected the sale of about 8,000 January 21 puts for $0.25 against open interest of just 472 contracts. The trade reflects a belief that the chip maker will stay above $21 for the next five weeks, in which case he or she will keep the premium as the options expire worthless.
The investor is hoping to take advantage of time decay , which will erode the value of the puts at an accelerating pace as expiration approaches. It's a market-neutral strategy that makes money from the passage of time rather than a directional move. Such trades often appear when investors like a stock but don't want to expend capital getting long. (See related column by Chris McKhann)
ARMH fell 4.47 percent to $25.03 yesterday. The stock rallied from below $4 to over $30 between early 2009 and early 2011 but has been consolidating since then. Its recent low was around $22, so today's put seller is essentially betting on the current range to continue.
Overall option volume in ARMH is 4 times greater than average so far today.
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