Markets

Do bears want to crush Rackspace?

Rackspace Hosting has taken a beating, and bears see more pain on the horizon.

optionMONSTER's Depth Charge monitoring program detected the purchase of 7,800 August 33 puts for $1.30 to $1.60. Volume was more than 100 times previous open interest at the strike, which suggests new money was put to work.

Puts lock in the price where a stock can be sold, so they gain value when shares decline. Investors use them to protect long positions or to speculate on a drop. Their cheap cost can also produce significant leverage on a percentage basis. (See our Education section)

RAX fell 1.62 percent to $34.56 yesterday and has lost 37 percent of its value in the last three months. Most of that drop occurred after revenue missed estimates on May 11 and management issued weak guidance. The next quarterly report is due in the post-market on Aug. 10.

The cloud-computing stock is trying to hold support at its lowest level since August. It's seen both bullish and bearish activity already this month.

Total option volume was 7 times greater than average so far today, with puts outnumbering calls by 16 to 1.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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