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Massive leverage in Adobe wager

David Russell (david.russell@optionmonster.com)

One investor is using a hugely leveraged strategy in Adobe Systems, which has been advancing into record territory since late last year.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 1,000 January 60 calls for $5.63. Equal-sized blocks were sold at the same time in the January 50 puts for $2.71 and the January 70 calls for $2.26. Volume was more than twice the previous open interest at all three strikes, which indicates that new positions were initiated.

The transaction had a net cost of $0.66 and will expand to $10 if the software maker closes at $70 or higher one year from now. That would be profit of more than 1,400 percent from an 18 percent gain in the share price. (See our Education section for more on the leverage potential of options.)

ADBE is down 0.45 percent to $59.12 in afternoon trading and up 57 percent in the last year. It's been rallying on strong earnings as management successfully transitions customers to a subscription-based revenue model.

Because of the short puts , today's option trade could lose money if the stock falls too far. But the trader selected the $50 strike, near a key level where the stock bounced in October after breaking long-term resistance in the previous month. That price action could lead some chart watchers expect support around that area and make the risk/reward profile more advantageous.

Overall option volume is more than twice the daily average in the name so far today, with that bullish trade accounting for more than 80 percent of the total.

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