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VeriFone traders think the bottom is in

David Russell (david.russell@optionmonster.com)

Traders apparently think that VeriFone is a safe bet as the former high-flying stock attempts to hold a key support level.

optionMONSTER's tracking programs detected the sale of about 2,300 December 30 puts for $1.80. Volume was almost quadruple previous open interest at the strike, indicating that new positions were initiated.

The investor is now obligated to buy shares for $30 if they close below that price on expiration, but including the credit earned their entry price would be $28.20. Above $30, the puts expire worthless and they'll keep the premium as profit.

PAY is up 4.6 percent to $30.23 in early afternoon trading. The maker of credit-card readers enjoyed a huge rally between March 2009 and March 2011, climbing from below $4 to over $50. It's been churning since then as earnings results have weakened and is back to a consolidation level from about two years ago, which could be leading some traders to believe that it's now at support.

Traders often sell puts when they like a stock and expect downside to be limited. The benefit of the strategy is that it doesn't require any cash up front and lets investors profit from the normal process of time decay, which lowers premiums as expiration approaches. The risk is that a major decline occurs in the share price, forcing them to own the stock for more than it's worth. (See our Education section for more on how to turn time into money using options.)
Some 3,600 contracts have traded so far today, more than quadruple the daily average.

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