Why trader is selling puts in Spectrum

optionMONSTER

Spectrum Pharmaceuticals has been finding support around its current level, and one investor is confident it will hold.

optionMONSTER's tracking programs detected the sale of more than 2,000 December 10 puts for $0.45. Open interest at the strike was 1,388 contracts when the session began, so new positions were clearly initiated.

The investor is now obligated to buy shares in the drug maker for $10 if they close below that level on expiration. If they remain above it, the puts will expire worthless and they'll keep the credit as profit.

Traders often sell puts when they like a stock but don't want to shell out cash at current prices. That way they can make money from the passage of time, while also programming a buy order at a cheaper level. In the case of today's trade, their effective entry price is lowered to $9.55 because of the credit earned. (See our Education section)

SPPI is down 1.12 percent to $11.15 today. It peaked over $17 in July, then rolled over and has been drifting lower since. The company's earnings have beaten estimates for at least three consecutive quarters.

Total option volume is triple the daily average so far in the session.

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