Why puts are surging in ARM Holdings

optionMONSTER

Chip maker ARM Holdings is seeing downside option activity today after pulling back this week along with other Apple suppliers.

A trader sold 9,467 January 41 puts for $0.80 and bought the same number of February 38 puts for $0.90, according to optionMONSTER's Depth Charge system. The volume was below open interest in the January options but above it in the February contracts, suggesting that a position is being rolled forward and to a lower strike.

The January puts are in the money and expire on Friday, so the trader is paying a net $0.10 for an additional month of protection down to a lower strike price. Given the stock's strong rally in recent months, the puts could well be a hedge to protect gains on a long stock position. (See our Education section)

The stock had been on a huge run since breaking out of tight range after the company's quarterly report in mid-October, though shares have pulled back since hitting a lifetime high of $42.55 on Monday. ARMH, which makes chips used in the iPhone 5, is up 0.35 percent to $40.67 this afternoon after slipping in recent days as Apple plunged on negative news.

Total option volume in ARMH is more than 7 times its daily average in the last month.

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