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What's behind put surge in CarMax

David Russell (david.russell@optionmonster.com)

CarMax has been struggling, and traders fear for the worse.

optionMONSTER's Depth Charge monitoring program detected the purchase of 5,000 November 48 puts for $1.55 and the sale of equal number of November 45 puts for $0.50. Volume was more than triple open interest at each strike, indicating that new positions were initiated in this vertical spread .

The investor will collect $3 if the car retailer drops from $48 to $45, and paid $1.05 to control the spread. That translates into a profit of 188 percent if the move occurs. He or she may be using the strategy to protect a holding in the stock or to speculate on a decline. (See our Education section)

KMX is down 1.15 percent to $47.95 in early afternoon trading. It surged more than 80 percent between September 2012 and last month but has been skidding lower since and now appears to be hitting resistance at its 100-day moving average. That could make some chart watchers expect further downside is coming.

Results have been strong, and the stock hit an all-time high following a better-than-expected quarterly report on Sept. 24. Shares have nonetheless bled steadily lower since.

Total option volume is triple the daily average so far in the session, according to the Depth Charge. Puts outnumber calls by a bearish 157-to-1 ratio.

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