Caution reigns in Ciena strategy

optionMONSTER

Ciena has been trying to rebound, but traders are hedging their bets.

optionMONSTER's Depth Charge monitoring program detected the purchase of 2,000 January 2016 20 puts for $3.70 and the sale of 4,000 January 2016 15 puts for $1.40. An even 1,000 January 2015 20 puts was also sold for $2.075, but volume was below open interest in those.

The investor probably owned the shorter-dated contracts to protect a long position in the maker of networking gear. He or she then sold those and initiated a new ratio spread one year further into the future, collecting a credit of $338,750 in the process.

They now stand to receive $1 million more if CIEN falls to $15 on expiration. Gains erode under that level because they must buy shares, but they'd probably be willing to do so because the stock hasn't traded that low since mid-2013. (See our Education section for more hedging techniques.)

CIEN is down 0.91 percent to $20.74 in afternoon trading but is up 11 percent in the last two months. Its last two quarterly reports beat estimates, with management predicting stronger results in the second half.

Total option volume in the name is triple its daily average, with overall puts outnumbering calls by a bearish 6-to-1 ratio.

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