VirnetX Holding Corporation (VHC) is a company involved in the commercializing of portfolio patents. The company’s stock is currently trading around $19.30 in a 52 week range of $16.10-$36.84. The stock has been very weak this year with shares falling nearly 34% year to date. Options activity in VHC suggests that traders believe this weakness will continue through the first half of next year. Earlier in today’s trading session a trader sold 9,000 Jan 2015 18 strike calls and bought 9,000 Jun 2014 25 puts for a $6.80 total debit. This is very bearish trade that expresses this trader’s view on further downside in VHC next year. This block also traded at volume that represents 10.2 times the average daily option volume in VHC. The chart is looking weak as well. Shares of VHC are primed to break the cloud to the downside, a key technical level that shares could tumble from if broken. We believe that both the technical and the order flow justify a long term trade in VHC to the short side. We will look for a setup more in line with our risk tolerance unlike the trade the block trader executed. We do not want any risk of blowing out.
Trade: Buying the VHC Jun 20-15 Put Spread for $2.60
Risk $260 per 1 lot
Reward: $240 per 1 lot
Breakeven: $17.40
This in the money put spread offers a great risk vs. reward ratio and does not carry the same level of risk as the block trader.
