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Downside position targeting ARM

David Russell (david.russell@optionmonster.com)

ARM Holdings jolted higher last week, but now traders are positioning for a potential drop in the mobile-chip maker.

optionMONSTER's Depth Charge monitoring system detected the purchase of more than 10,000 September 45 puts on Friday, most of which fetched $0.40 and $0.45. Volume was more than 30 times open interest at the strike, indicating that new positions were initiated.

Puts lock in the price where stock can be sold, giving them an inverse relationship to the share price. Investors hold them to insure long positions against a drop or as an alternative to short-selling. Either way, these contracts will expire worthless at the end of this week if ARM stays above the $45 strike price. (See our Education section for more on how options can improve your trading results.)

ARMH fell 0.28 percent to $46.56 on Friday but is up 10 percent in the last week. Most of that move came after Apple announced that its new iPhone will be the first consumer product to use the company's 64-bit processors.

The stock had a massive run between early 2009 and May of this year, when it peaked around $50. It then fell sharply before bouncing at $35 in late June.

Total option volume was 7 times greater than average in the name in the session, according to the Depth Charge. Puts outnumbered calls by a bearish 15-to-1 ratio.

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