By David Russell of OptionMonster

NEW YORK -- Traders are apparently looking for further losses in Brocade Communications (BRCD) , which may be developing a bearish pattern on its chart. 

OptionMonster's tracking systems detected the purchase of almost 3,400 October 11 puts for 85 cents to 88 cents on Tuesday. The volume dwarfed the strike's previous open interest of just 196 contracts, which indicates that new positions were initiated. 

Puts lock in the price where the semiconductor stock can be sold, so they increase in value when shares slide. That way, investors can hedge bullish positions or speculate on a drop. Tuesday's trade is probably an outright bearish play because it is using an in-the-money strike. 

Brocade shares fell 1.54% to $10.23 on Tuesday. The stock peaked around $11 in April and again last month in a potential double top, so some chart watchers may view that level as resistance and expect further declines. 

Total option volume in Brocade was six times greater than average in the session, with overall puts outnumbering calls by 16 to 1. 

Russell has no positions in BRCD.

 

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.