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Bearish speculators converged on Diamond Foods (DMND - 37.05) yesterday, as approximately 18,000 puts changed hands, reflecting four times the equity's average daily volume. The bulk of the action centered around the out-of-the-money February 30 and 35 strikes, where nearly 12,600 of these puts were traded, collectively.
A closer inspection of the data shows that a block of 3,021 puts was sold at the 30 strike, while an equal number of puts were simultaneously bought at the 35 strike. This activity signals the initiation of a bear put spread. In this strategy, the trader is betting that the stock will finish at or below $33.35 (bought put strike minus net debit of $1.65) by front-month expiration. In the best-case scenario, his maximum profit is limited to $3.35 (different between strike prices minus net debit), no matter how far DMND sinks beneath the $30 level. Conversely, his potential risk is capped to the net debit paid.
The affinity for puts over calls is more of the same for the snack titan. The Schaeffer's put/call open interest ratio (SOIR) checks in at 1.24, confirming that puts comfortably outnumber calls among options slated to expire within three months. This ratio ranks in the 57th percentile of its annual range, which means that near-term options players have been slightly more put-heavy toward the stock of late.
From a technical perspective, DMND has gained roughly 15% so far this year, and has outperformed the broader S&P 500 Index (SPX) by nearly 31% during the past 40 sessions. On the charts, the stock is on pace to close a fourth consecutive week above its 10-week moving average, which had previously served as resistance since early October.
In the morning hours of the session, however, the equity is down about 1.6% and is trading at $37.05.