Alliance Data Systems hit an all-time high last week, and now the option paper is turning bearish.
OptionMonster's tracking programs yesterday detected a massive put buy in the company, which runs consumer-loyalty programs. A single block of 10,000 December 110s were purchased for $0.70, dwarfing previous open interest of just 12 contracts and therefore new activity. The trade accounted for more than 90 percent of the overall contracts in the name and pushed total option volume to 14 times above average.
Puts lock in the price where investors can sell shares, so they offer insurance against a decline. Even if Alliance remains above $110 through expiration, the contracts can appreciate to the downside because they'll get closer to being in the money. Given their cheapness to buy, they could also generate significant leverage from a pullback in the name.