One trader's million-dollar bet against the cloud

VIDEO1:0201:02
Options Action: Bearish bet on Rackspace

Traders have been racking up bearish bets on one company that operates in the hot cloud computing space.

On Tuesday, bearish put options on Rackspace were at nine times the average daily volume, including one purchased position of 3,500 October 2 weekly 31-strike puts for $1.35 per share. That represents a bet of more than $1 million, which is nearly a third of average daily volume on the stock.

This trade will make money if the tech name falls more than 4 percent in about two weeks.

Rackspace has already tumbled more than 33 percent this year. Several competitors in the cloud space have also fallen for the year, including F5 Networks and VMware. Box, which went public in January, is down from its IPO price.

"We've seen bearish bets made in this thing historically," CNBC contributor Mike Khouw said Tuesday on CNBC's "Fast Money. " Traders "don't really think there's a lot of good going on in the space right now."

Khouw also noted that the stock has been beleaguered by poor earnings this year.

"Rackspace is already down very sharply since May, when they announced earnings that did not impress the Street," he said. "A bearish bet that the stock will be below $30 suggests the possibility of retesting the lows of the year during the most recent periods of volatility in late August."

The company hit its lowest level in more than a year when it dropped to $28 in August. Rackspace shares were down slightly midday Wednesday.


Sign Up for Our Newsletter Options Action

Insight directly from the members of our Options Action panel
Get this delivered to your inbox, and more info about about our products and services.
By signing up for newsletters, you are agreeing to our Terms of Use and Privacy Policy.