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Put volume spiked on Alcatel Lucent SA (NYSE:ALU - 1.27) last Friday, with roughly 11,000 contracts crossing the tape -- or 51 times the telecom stock's average daily put activity. Calls were also unusually active, though only 6,913 of these bullishly oriented contracts changed hands by the close.
However, Friday's put players aren't necessarily betting on ALU to plunge. The day's most active option was the January 2014 1-strike put, where 10,380 contracts were traded. Nearly all of these contracts crossed at the bid price, and open interest rose over the weekend by 10,209 contracts -- indicating sell-to-open activity at this strike.
By selling ALU's January 1 put to open, traders are betting on the shares to remain at or above $1 per share through the next 13 months. If this scenario plays out, put sellers can retain the premium collected on the options as their maximum potential profit. For reference, Friday's January 1 puts traded at a volume-weighted average price (VWAP) of $0.25. Based on this premium, put sellers won't begin to lose money unless ALU drops below $0.75 -- but they do face the risk of assignment on a move beneath $1.
ALU has shed about 20% of its value so far in 2012, but word of a fresh financing deal on Friday may have spurred the sudden uptick in neutral-to-bullish speculation. In fact, that positive news propelled the stock north of its 120-day moving average for the first time since April. In today's session, the shares are extending their positive momentum after scoring a new "overweight" rating from Evercore Partners and an upgrade to "buy" at Natixis.