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SolarWinds Inc (NYSE:SWI) has seen a massive spike in put activity today, as roughly 10,000 of these contracts have changed hands -- about 37 times the stock's anticipated intraday put volume. By comparison, just over 100 calls have crossed the tape. However, the bulk of the alternative energy concern's put volume is of the neutral-to-bullish variety.
To be more specific, nearly 9,900 contracts have been exchanged at the September 35 put -- most of them in one large block near the bid price for $0.40 each, suggesting they were sold. Since this strike currently holds open interest of just 1,116 contracts, it's likely that new positions have been established here.
By selling the puts to open, the trader is counting on the stock to remain north of $35 between now and front-month expiration. This would render the contracts worthless, and allow him to pocket the net credit received. However, should the shares breach the strike price ahead of the close on Sept. 20, the speculator could be on the hook to purchase the shares for $35 apiece, no matter how low SWI sinks. According to the put's delta of negative 0.23, the options market sees a near 1-in-4 chance of this happening.
From a technical standpoint, SolarWinds Inc (NYSE:SWI) has shed more than 29% year-to-date, and has trailed the broader S&P 500 Index (SPX) by close to 13 percentage points during the past two months. On the charts, the shares suffered a bearish gap on July 26, after the firm issued a disappointing earnings outlook for the year, and their recent rally attempt was thwarted by the $40.50 area. At last check, however, the stock is up 2.2% today to trade at $37.24.