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Option Brief: Rite Aid Corporation (NYSE:RAD) is currently down 9.3% to trade at $5.22, after the company slashed its 2014 profit forecast this morning. Subsequently, the equity landed itself on the short sale restricted (SSR) list, causing a spurt of put activity. At last check, about 15,000 puts had crossed the tape, which is nearly five times the typical amount seen by this time of day.
More than 8,000 of these contracts -- including two large blocks -- changed hands at the April 2014 5.50 strike. Almost all of the puts went off at the ask price, and volume exceeds open interest at the strike, suggesting long positions were created here. Data from the International Securities Exchange (ISE) confirms at least some of this was buy-to-open activity.
While today's puts are currently in the money, the bearish bettors won't turn a profit unless RAD backpedals beneath breakeven at $4.60 (strike price less the volume-weighted average price of $0.90) by April 2014 options expiration. That means sometime over the next four-plus months, the equity has to fall back into territory last explored on a daily closing basis on Sept. 19. Keeping in mind that Rite Aid Corporation (NYSE:RAD) is still up 400% year-over-year, should the shares fail to make the expected plunge, the most today's put players stand to lose is the initial premium paid.