Options Trading News

October 10, 2012  Wed 2:45 AM CT

Allscripts Healthcare Solutions has popped, and now one investor fears a drop.

optionMONSTER's Depth Charge monitoring system detected the purchase of 2,500 November 13 puts for $0.80. Volume was more than 4 times previous open interest at the strike, clearly indicating a new position.

This put buying locks in a minimum selling price of $13 through expiration, a contract that will appreciate in value if the stock tanks. If the trader owns shares, he or she is now spared the difficulty of exiting the position and still has the right to profit from a rally. (See our Education section for more on how options can be used to manage risk.)

MDRX fell 2.02 percent to $13.57 yesterday but is up more than 25 percent since late last month. Much of that move occurred on Sept. 28 after Bloomberg reported that the health-care IT company might be acquired in a leveraged buyout.

Since then, the shares have stalled and are now parked at their 200-day moving average. That could be leading some chart watchers to expect a pullback and would help explain yesterday's downside activity.

Overall option volume was triple the daily average yesterday, according to the Depth Charge. Puts accounted for almost two-thirds of the total.
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The covered call and unhedged risk

I have written a few things on the Covered Call Strategy over the last two weeks. Please understand that those two previous articles plus this one do not constitute a proper, fully in-depth lesson on the Covered Call Strategy like we have in our classes at Option Monster Education. I have picked out a few topics that I believe were worth noting and today I am going to add the final one.

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