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Alcatel Lucent SA (ADR) Pullback Expected to End

Put writer sets near-term price floor on Alcatel Lucent SA (ADR)

by 2/11/2014 1:42 PM
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Option Brief: After enjoying a recent earnings-induced uptick, Alcatel Lucent SA (ADR) (NYSE:ALU) has backpedaled 4.5% today to trade at $4.18, in pre-earnings territory. Even so, it appears one option trader is eyeing the $4 level as a short-term floor for the equity's losses.

Particularly, a block of 900 February 4 puts crossed the tape for a bid price of $0.06, suggesting the contracts were sold. Moreover, implied volatility jumped 4.5 percentage points at the time of the transaction, demonstrating that a short put position was likely initiated.

In other words, today's speculator expects ALU to hold its ground atop $4 through front-month options expiration next Friday, Feb. 21. Should this happen, the puts will expire worthless, allowing the trader to retain the initial net credit as his maximum potential profit.

Influencing Alcatel Lucent SA's (ADR) (NYSE:ALU) price drop today may be a downgrade to "equal weight" from "overweight" at Morgan Stanley this morning. From a longer-term perspective, however, ALU sports an impressive 12-month gain of about 153%, which is encouraging for the aforementioned put writer.


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