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Armour trader see limited downside

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Armour Residential gapped lower yesterday, but traders are betting that further declines will be limited for the real-estate investment trust.

More than 7,000 April 7.50 puts were sold, led by prints of 2,500, 2,000, and 1,000 that went for  $0.90, optionMONSTER's systems show. The volume was well above the strike's open interest of 2,693 contracts before the day's trading began, indicating that these are new positions.

These put sellers are betting that ARR will stay above $7.50 through expiration in mid-April. If the stock falls below that strike price, the traders will face the obligation to buy shares at an effective price of $6.60 once the credit from the put sale is factored in. (See our Education section)

ARR dropped 5.5 percent to close at $6.70, a day after announcing that it would issue a secondary stock offering. The decline took the stock below several key moving averages.  

Yesterday's trading pushed total option volume in Armour to 9,159 contracts yesterday, 23 times its daily average for the last month.

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