OPTIONS REPORT: 'Put Spreads' Signal Bearich Bet On Microchip Stocks
18 December 2010 - 9:29AM
Dow Jones News
The technology-heavy Nasdaq Composite Index notched its 11th
gain in 12 sessions, but one bearish options trader seemed to take
a bet that technology stocks might be running out of fuel.
One options trader on Friday appeared to purchase a "put spread"
on the Semiconductor HOLDRs Trust exchange-traded fund. The fund
tracks microchip and microchip-equipment companies such as Intel
Corp., Texas Instruments Inc. and Applied Materials Inc.
Investors can buy puts, which give them the right to sell an
asset cheaply in the event that it declines. Or they can buy a "put
spread," in which they buy one set of puts and sell another--a bet
the asset will only fall a certain amount.
On Friday, a trader bought February $30 puts in the ETF for 46
cents each, and sold $27 puts for the same month, for 15 cents
each, paying a net of 31 cents for each contract. With the fund up
a fraction at $32.58 at Friday's close, the trader stands to profit
if the fund falls 8.8% to $29.69 by February 18.
"You're seeing a bit of anticipation that perhaps we're due for
a correction," said Andrew Wilkinson, senior market analyst at
Interactive Brokers.
In other options activity, there appeared to be bearish options
trading related to online retail giant eBay Inc. in anticipation of
further declines into the new year. The stock closed down 2.3% at
$29.82.
Options traders bought January $30 puts and January $29 puts,
seemingly on the expectation that the stock would continue a
downward trend.
Investors in the $30 puts will turn a profit if eBay stock if
falls below $28.74; investors in the $29 puts stand to gain if the
stock falls below $29.14 by January 21, two days after the company
reports earnings.
-By Chris Dieterich, Dow Jones Newswires;
212-416-2611;christopher.dieterich@dowjones.com