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Ciena draws big protective position

David Russell (david.russell@optionmonster.com)

Ciena has run like a horse, and one big investor fears it may stumble.

optionMONSTER's Depth Charge monitoring system detected the purchase of 2,000 November 26 puts for $1.25. Equal-sized blocks were sold at the same time in the November 23 puts for $0.36 and the November 28 calls for $0.86. Volume was more than 5 times open interest at all three strikes.

The trade combines a covered-call strategy with a put spread and is probably the work of an investor looking to protect a long position in the telecom-equipment stock. He or she paid just $0.03 and now stands to collect $3 if CIEN drops to $23 or lower by expiration. The trader is also on the hook to sell shares for $28 if they rise above that level. (See our Education section for other hedging techniques.)

CIEN is down 3.64 percent to $26.20 in midday trading but is up 69 percent in the last six months. It had been rallying after a string of good earnings reports but is now stalling at its highest level in more than two years.

Total option volume is twice the daily average in the name so far today, with that complex three-way trade dominating the activity.

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