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There are few investors that can be called as savvy as billionaire investor George Soros over the past few decades. Nonetheless, option traders maybe wanting to smartly follow in the footsteps of a guy who literally broke the Bank of England; could be onto an even more competent bullish strategy in RF Micro Devices (RFMD) called the married put.
In Tuesday’s session nearly 13,000 near-the-money August 6 puts traded in a flood of smaller sized prints, as well as a handful of some larger speculations. With open interest of just less than 3,000 we know a good deal of the order flow was opening. We can also easily deduce buyers were at work.
On Friday and shares of RFMD at $6.15 and during quiet trade, the August 6 put closed at $0.40 per contract mid market. By Tuesday’s close and the stock trading up to $6.30, the contract finished at $0.43. Without even looking at implieds which did pop 9 points from 41% IV to 50% IV, it’s easy enough to piece together opening buyers as the dominate force behind the unusual activity.
However, rather than seeing these buyers as being overtly bearish on shares and in sync technically with the likes of our pal PS Elliott’s bearish daily W4 signal or weekly W5; traders may have been taking their cue from a nice-looking monthly up-channel. To that technical end, traders may have been putting together the bullish married put strategy which combines long stock and a protective long put in order to control the underlying risk through the life of the contract or until an adjustment is made.
In consideration of Tuesday’s increased and above average stock volume and in doing some print digging which found one of the day’s larger prints of 2,600 contracts for $0.45 was closely-aligned in timing with a near equivalent 1-to-1 block of 243,400 shares; the married put strategy does seem to hold some extra confirmation.
Figure 1: RF Micro (RFMD) Monthly Chart
click to enlarge
Looking above at Figure 1, a married put strategy using the mid-dated August put has long-term support and monthly hammer candlestick confirmation following a 38% retracement, successful test of prior resistance and a near perfect 30% correction to back up any would be optimism on the part of option traders.
As well, maybe our hypothesized synthetic bull is paying homage to that other fore-mentioned and savvy investor George Soros rather than Elliott or our own technical interpretation of the current trend? A couple weeks back on May 17 it was disclosed through a 13F filing that the size of Mr. Soros’ position in RFMD doubled from about 2.2M shares to roughly 4.4M.
Figure 2: RF Micro (RFMD) 5x August 6 Married Put
click to enlarge
In truth, RFMD remains woefully short of being the billionaire investor’s largest stake. We also realize it isn’t exactly the kind of investment which would ever be likely to produce headlines of a market being cornered and bears having had their backs broken. Nonetheless, I’m thinking Tuesday’s investors like our illustrated trader shown above and using roughly 2% risk on a 20K portfolio, are acting more smartly than Soros--and regardless of whether or not a ripple effect of wealth being created in RFMD is found in the weeks and months ahead.
Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
Optionetics.com
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