U.S. Markets closed

What's behind big put activity in BMC

David Russell (david.russell@optionmonster.com)

BMC Software might pull back a small amount, but one investor is confident in the longer term.

optionMONSTER's tracking programs detected unusual put volume in the company, which reports earnings after the bell on Monday. Some 5,300 February 41 puts were bought for an average premium of $0.425, while an equal number of May 40 puts were sold at the same time for $1.05. Volume was below open interest in the February contracts, so there are two possible interpretations of the trade.

One is that the trader sold the February puts to earn income, and now rolled that position forward in time. Alternatively, he or she may have opened both parts of the trade, which would make it a calendar spread with the March puts poised to make money from a quick but limited drop. (See our Education section)

BMC fell 1.03 percent to $43.36 yesterday. The stock has been grinding higher since November and is now stalling around the same $44-$45 area that's been resistance for the last year.

Given that earnings are coming out soon, the investor may expect a limited drop in the near term but apparently thinks that the stock will then remain above $40 in subsequent months. The trade collected a credit of $0.625 in the process.

Overall option volume was 11 times greater than average in the session, with puts accounting for 97 percent of the total.

More From optionMONSTER