Light-emitting diodes have been coming back to life recently, but traders are cautious toward Veeco Instruments.
optionMONSTER's Depth Charge monitoring program detected the purchase of about 3,790 November 37 puts for $1.90 and the sale of a matching number of November 33 puts for $0.55. Volume was more than 60 times open interest at both strikes, indicating that new positions were initiated.
The investor now has the right to sell VECO for $37 and must buy the shares back for $33 if they close below that lower level on expiration. He or she will collect the $4 difference between the two prices if that drop occurs. Based on their $1.35 entry cost, profit would be 196 percent. (See the discussion of vertical spreads in our Education section for more.)
VECO is down 0.63 percent to $37.84 in midday trading but is up almost 7 percent in the last month. It's been climbing along with other LED companies, which have been returning to favor after a long period of weakness. (See our researchLAB market scanner for more on the group .)
Last year's calendar suggests the company will report third-quarter after October expiration, although it hasn't yet confirmed the date. Today's spread will provide protection against a poor set of numbers because it's in November.
Total option volume is 11 times greater than average in VECO, with puts outnumbering calls by a bearish 26-to-1 ratio.
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