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Option Brief: Alcatel-Lucent SA (ADR) (NYSE:ALU) was wildly popular among put traders on Wednesday, with roughly 31,000 contracts changing hands. This exceeded typical daily put volume by a factor of 16, and more than tripled the number of calls changing hands. Nearly all of this put volume, however, was not bearish in its intention.
Taking center stage was the January 2014 3.50-strike put, where two blocks totaling 30,000 contracts traded in rapid succession on the NASDAQ OMX PHLX (PHLX) for a bid price of $0.35. An overnight spike in open interest, along with analysis from Trade-Alert, indicates these puts were sold to open as a neutral-to-bullish bet that the stock will continue to hold its recent gains through the next three months.
The primary goal of the put-selling strategy is for the underlying to stay above the strike price through expiration. At this point, the put expires worthless, and the seller retains the premium as profit. If ALU were to venture south of this strike, the put seller would likely be assigned, and therefore obligated to buy ALU shares at $3.50 each, no matter how far the stock may have declined.
ALU has gained nearly 170% this year, so this optimism makes sense. What's more, the put seller could be looking to buy Alcatel-Lucent SA (ADR) (NYSE:ALU) shares on a pullback to $3.50, and is therefore being "paid to wait" for this price action by collecting premium upfront. ALU traded below $3.50 as recently as Oct. 9.
For in-depth analysis of Alcatel-Lucent SA (ADR) (NYSE:ALU), visit our ALU quote page, which contains links to recent commentary, charts, and sentiment indicators.