Level 3 Communications is consolidating after a rally last month, and one investor apparently thinks that it will remain trapped in a range.
optionMONSTER's tracking systems detected the sale of 7,000 September 1 puts for $0.11 and 7,000 September 1.50 calls for $0.16. Volume was more than 8 times open interest in both strikes.
The trade, known as a short strangle, let the investor collect a credit of $0.27. He or she will get to keep that money if the broadband communications stock remains between $1 and $1.50 on expiration, although they can withstand a drop as low as $0.73 or a push as high as $1.77 without losing thanks to the premium received. (See our Education section)
LVLT fell 0.79 percent to $1.25 on Friday and is up 28 percent so far this year. Burdened by a heavy debt load, the stock has trended lower ever since the tech bubble broke a decade ago.
Recently, however, it's been showing signs of life and popped in November after being selected by Netflix to stream videos and store data. It then pulled back, rallied, and now is consolidating above those November highs.
Despite the good news, some chart watchers may expect LVLT to struggle for an extended time given how long it has been trending lower.
The short strangle pushed total options volume in the stock to 10 times greater than average in Friday's session.
Disclosure: I own LVLT shares.
(Chart courtesy of tradeMONSTER)
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