Options Trading News

April 20, 2012  Fri 9:33 AM CT

As Ctrip.com hovers just above two-year lows, a large option spread appears to be positioning for more downside.

CTRP trades at $21.31, up o.92 percent on the day. Shares of the Chinese online travel service have lost about 60 percent of their value in the last year, trending down from above $50 last April while consistently seeing lower highs and lower lows. The stock was at a two-year low of $20.65 at the start of the month.

More than 21,000 CTRP options have changed hands already this morning, about 10 times the daily average. Most of this is tied up in a three-way spread.

optionMONSTER's systems show that a trader sold 8,000 April 23 puts for $1.70 against open interest of 8,858, bought 8,000 May 23 puts for $2.35, and sold more than 4,000 May 23 calls for $0.60 across exchanges. The volume at the May strikes was more than open interest.

Today is the last day of trading for those April options, so the trader is apparently rolling out the puts and adding some short calls at the same time. Given that the puts are in the money, it is very likely that this is a continuation of a bearish play that the trader wants to extend for at least another month. (See our Education section)
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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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