Stocks are headed for their first losing month since November, and some investors are turning to income strategies.
optionMONSTER's tracking systems detected a surge of put selling in companies such as Harley Davidson, Staples and Tessera Technologies as traders looked to earn premium rather than committing capital in hope of an immediate rally.
HOG, for instance, has been dropping for the last seven weeks, but is now close to a support level from last year. That made one investor think it was a safe to sell the June 34 puts.
Chip maker TSRA has been struggling even longer, and fell another 4.54 percent to $17.26 yesterday after losing a patent-infringement case. More than 3,000 June 16 changed hands, with most of the large trades pricing for $0.40, pushing total options volume in the stock to 20 times greater than average.
Our screening programs estimated that 2.8 million puts were sold yesterday, up from the 2.6 million average amount. The increase came despite total market volume being about 10 percent less than normal.
SPLS is even more beaten down after a poor earnings report caused the shares to gap down from the $19.50 level last week to about $16.60 now. More than 18,800 traded overall in the name versus an average of less than 4,000 in a typical session. The bulk of the activity was in the July 15 puts, which were sold for $0.15. SPLS ended 2.08 percent higher at $16.71.
Writing puts is a common strategy when investors like a company but don't necessarily think it's ready to climb right away. They get to keep the money if shares hold their ground and are obligated to get long if they fall below the strike price. Such activity is often appears when the market has failed to perform for a period of weeks or months. (See our Education section)
Some trades also occurred in stocks that have been trending higher. Drug developer Pharmacyclics, for instance, saw the sale of 3,000 November 6 puts for $0.55. And about 4,500 June 16 contracts were sold in online marketing company ValueClick for $1.80 to $2. Both are up more than 15 percent since the beginning of April.
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