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Why trader is selling puts in Ocwen

David Russell (david.russell@optionmonster.com)

A trader apparently believes that Ocwen Financial is on solid ground, even after a weak earnings report last month.

optionMONSTER's tracking programs detected the sale of more than 5,000 January 52.50 puts, most of which priced for $3. Volume exceeded previous open interest of 3,268 contracts, indicating that new positions were initiated.

Investors sell puts when they like a stock but don't want to shell out cash getting long. It lets them collect income in return for agreeing to buy shares if they're below the strike price upon expiration. Given the premium already received, today's trade effectively programs an entry price of $49.50. (See our Education section for more on how to navigate the market more efficiently with options.)

OCN is up 0.44 percent to $52.79 in morning trading. Fueled by runaway growth, the loan processor rose about 85 percent in the first ten months of this year after doubling in 2012. Results missed expectations the last time results came out on Oct. 31 but still increased at a double-digit pace and are expected to improve strongly going forward.

The stock also seems to be holding support round the same $50 level where it consolidated in August, which could make some chart watchers think that downside risk is limited.

Total option volume is triple the daily average so far in the session.

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