Why trader is selling puts in Cobalt

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Shares of Cobalt International Energy are slipping off eight-month highs, but one trader is betting that the stock will hold most of its gains in coming months.

The single largest print in CIE is in the March 22.50 puts, which were sold 2,500 times for the bid price of $1.35 on a relatively wide bid/ask spread, optionMONSTER systems show. The volume was more than 10 times its open interest at the beginning of the day, so this is clearly a new position.

The trade is based on the thesis that CIE will hold above the $22.50 strike price through expiration in mid-March. Put sellers take on the risk of having to buy the stock if it trades below the strike, and they get the option premium as compensation. (See our Education section)

CIE is down 8.2 percent today at $25.20 after trading as low as $24.33 this morning. Shares of the offshore-oil driller were above $29 last week, their highest since mid-April. They were down at support at $20 a month ago and gapped up last week from below $24.

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