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Downside play tunes into RadioShack

Mike Yamamoto (mike.yamamoto@optionmonster.com)

RadioShack has been trying to recover after losing almost half its value in the last year, but one trader is positioning for another drop.

optionMONSTER's Depth Charge system detected the purchase of 2,515 August 2 puts in about 3 minutes on Friday as premiums rose from $0.15 to $0.17. The volume was more than 3.5 times higher than the strike's open interest of just 700 contracts before the session began, clearly indicating new activity.

RSH closed Friday up fractionally at $3.27, just below its 50-day moving average. Shares of the struggling electronics retailer are down more than 45 percent in the last year but have been trading sideways since late January, in an increasingly tight range this month.

Friday's put buying wasn't tied to any stock trades identified by our systems during the session, so it could either be a protective hedge on an earlier long position or an outright bet that RSH will drop below $2 by mid-August. These contracts, which lock in the price where traders can sell the stock no matter how far it might fall, will expire worthless if shares remain above that level. (See our Education section)

RadioShack hasn't traded below $2 since last December. The company is scheduled to hold its annual shareholders meeting on May 16.

Overall volume in the name exceeded 5,800 contracts on Friday, more than double its daily average for the last month. Calls outnumbered puts by about 40 percent.

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