Tekelec is trying to rebound after a major selloff, and investors apparently believes that the stock has found a floor.
optionMONSTER's tracking systems detected heavy put volume in the maker of telecom software, but the overall sentiment was bullish. Some 1,750 November 8 puts were sold for $0.80 and an equal number of November 7 puts were bought for $0.40.
That resulted in a credit of $0.40, which the investor will get to keep if TKLC stays above $8 through expiration. They can lose a maximum of $0.60 if the stock falls to $7 or lower.
The trade occurred minutes after the open, and the stock pushed higher as soon as the options changed hands. Investors often sell puts when they like a stock and think it's unlikely to drop. Unlike buying shares, they receive cash up front, which is the most they can make from the position.
TKLC is up 4.39 percent to $8.80 in morning trading but is down 27 percent this year. Most of that drop occurred on Feb. 10, when Tekelec issued a weak full-year forecast. It has been trying to bottom out since then, and management announced a restructuring plan earlier this month that will entail cutting up to 15 percent of its workforce.
Today's put seller also wrote 1,100 November 9 contracts for $1.30 to $1.20, which is especially noteworthy because selling in-the-money puts is similar to owning stock. They will quickly profit from a rally because the contracts have a stronger delta relative to the underlying. (See our Education section)
Overall option volume in the name is 9 times greater than average so far today. Today's trade followed a bearish put roll four weeks ago.
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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