Traders keep faith in Mercadolibre


Traders apparently think that Mercadolibre is on solid ground despite a poor earnings report last week.

optionMONSTER's tracking programs detected the sale of about 2,000 December 72.50 puts for $1.90 to $2.10 yesterday. Volume was more than 25 times open interest at the strike.

Those investors are now obligated to buy shares of the Latin American Internet company for $72.50 if they close below that level on expiration, creating the risk of losses if they fall into the $60s or lower. But if MELI holds its ground above the strike price, the puts will expire worthless and the credit will be kept as profit.

MELI fell 2.15 percent to $75.48 yesterday. It has swung wildly between $50 and $100 over the last year, though its range has narrowed since the summer. Shares gapped higher in August following a strong quarterly report but then dropped on Nov. 2 after profit and revenue both missed expectations.

The put sellers may like the company but may be willing to own shares only if they drop to $72.50. Unlike buying the stock, they now stand to make some money even if it never touches their level. (See our Education section for more ideas on how options can be used to manage risk.)

More than 2,500 contracts traded in the name, almost triple the daily average.

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