LPS – Lender Processing Services, Inc. – The provider of integrated technology and outsourced services to the mortgage lending industry attracted a bevy of long-term bearish put buyers this afternoon. Shares are down 0.40% at $33.31 heading toward the close, but did manage to eke out an early-morning rally of 0.25% to touch an intraday high of $33.52 perhaps after being rated new ‘buy’ at Fagenson & Co. with a 12-month target share price of $38.00. Put players may be buying the puts outright because they expect the firm’s shares to decline, or they could be building up downside protection to provide long-term insurance on sizeable positions in the underlying shares. It looks like investors purchased approximately 9,500 put options at the March 2011 $30 strike for an average premium of $2.00 apiece. Traders holding these contracts are prepared to profit should Lender’s shares plummet 15.9% from the current price of $33.31 to breach the effective breakeven point to the downside at $28.00 by expiration day next March. LPS shares would need to fall below the current 52-week low on the stock of $29.22 for investors to start to make money or before downside protection kicks in.
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Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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