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Shutterfly faces unusual bearish play

David Russell (david.russell@optionmonster.com)

Someone is worried that Shutterfly might roll over.

optionMONSTER's Depth Charge tracking system detected the purchase of about 1,900 August 52.50 puts for $1.40 and the sale of a similar number of September 60 calls for $1.40. Volume was more than 11 times the previous open interest at each strike, indicating that new positions were initiated.

Buying puts locks in a minimum sale price on a stock, while selling calls forces the investor to unload shares if they climb to a certain level. Combining the trades two reins in profit to the upside but limits the amount of money that can be lost in a major selloff. It's often known as a collar strategy. (See our Education section)

SFLY declined 1.02 percent to $55.58 on Friday but has more than doubled since late last year. The photo-sharing service has been rallying against heavy short interest and has benefited from rapid sales growth. Quarterly results have also beaten estimates for at least four straight quarters.

The unusual aspect of last week's collar is that it uses different expiration months. The trader now has downside protection for the next three weeks but remains short calls for an additional month. This suggests that he or she is nervous about a drop when the next set of numbers come out tomorrow afternoon.

Total option volume was 10 times greater than average in the session, according to the Depth Charge.

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