Investor bets on Tellabs, buys put options as hedge

Trading of bearish Tellabs Inc. options jumped after an investor bought shares in the maker of telecommunications equipment and hedged the position with options, Interactive Brokers Group Inc.'s Caitlin Duffy said.

More than 40,000 puts giving the right to sell the shares changed hands as of 4 p.m. New York time, 39 times the four-week average, as the stock fell 2.5 percent to $7.86, a two-month low. The most-active contracts were July $7 puts. Almost 32,000 of them changed hands, and 97 percent traded at the ask price, a sign they were purchased.

"Even though this is a huge put play, it is actually the work of a bullish investor," said Duffy, an equity options analyst at Greenwich, Connecticut-based Interactive Brokers. "They're bullish but not willing to fly solo, so they're taking out cover in case they're wrong."

The investor bought 750,000 shares of Naperville-based Tellabs at $7.80 as part of an options-related trade, according to Duffy and Bloomberg data. The shares have risen 38 percent year to date, compared with a 1.1 percent slump in the Standard & Poor's 500 Index.

"Someone bought a large amount of stock and puts in Tellabs today," Patrick Mortimer, director of options trading at Pipeline Trading Systems LLC in New Hope, Pennsylvania. "The person took out protection if the stock doesn't go up."