Market Insights

Super Micro Computer was an early leader in the AI boom, and options traders are active as it trends lower.

This large transaction was detected yesterday in the maker of machine-learning servers:

• 20,000 23-May 56 calls traded for $0.01.
• 20,000 23-May 49 calls traded for $0.01.

Volume was below open interest in both strikes, which suggests existing positions were closed.

At the same second, these blocks hit:

• 20,000 30-May 45 calls traded for $0.98.
• 20,000 30-May 49.50 calls traded for $0.36.

Volume exceeded open interest in both strikes, which indicates new positions were opened.

That combination of activity suggests the trader previously sold a credit spread expiring today. He or she apparently made money on it and rolled it forward one week into the future.

Selling Calls

Calls fix the price where a security can be purchased. They can appreciate when shares rise, so they are associated with bullish trends. However, investors can also sell calls in credit spreads, looking to profit from a stock not climbing to a certain level.

In the case of Thursday’s transaction, the trader may have sold the 23-May 49 calls in recent sessions. They also purchased the 23-May 56s to hedge against a potential rally above $49.

Super Micro Computer (SMCI), daily chart. Notice the falling 200-day moving average, which highlights a potential downtrend.

That could make sense because the stock jumped last week after announcing new business with a Saudi tech company. SMCI stalled below $48, maintaining a pattern of successively lower highs. In other words, the trader “faded” bullish news in a stock with a potentially bearish trend.

That strategy was apparently successful, so they closed it to lock in profits. The new position looks for prices to stay below $45. They collected $0.62 and can lose a maximum $3.88 if the shares rally to $49.50 or higher.

SMCI ended yesterday’s session at $41.32, down 0.8 percent.

It’s also noteworthy that the trader is using short-dated contracts. That lets him or her capture the quicker pace of time decay that expires in the final 1-2 weeks of an option’s life.

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