Options Trading News

March 25, 2014  Tue 1:53 AM CT


Linn Energy has been falling for the last year, and the bears aren't quitting yet.

optionMONSTER's Depth Charge monitoring program detected the purchase of about 27,000 April 26 puts, most of which priced for $0.60. Some 13,700 April 28 puts were sold around the same time for $1.30 but volume was below open interest in those. That suggests an existing position was closed, rolled to the lower strike and increased in size.

Puts move in the opposite direction as a stock because they lock in the price where shares can be sold. Traders often use them rather than shorting because they have no upside risk. (See our Education section.)

That appears to have been the case yesterday. The investor rolled his or her position to the lower strike, using some of their profits to increase the size of their downside bet in the ailing energy stock. That will enhance their leverage if the shares continue to fall.

LINE dropped 4.17 percent to $27.78 yesterday and has been under pressure since receiving a negative write-up in Barron's last May. It rebounded in the second half of 2013, but has been weak since hitting resistance at $33 five weeks ago.

The bears also targeted LinnCo, a related company that owns LINE shares, buying the April 26 puts for $0.85. (See this story for more.)

Overall option volume in LINE was 10 times greater than average in the session, according to Depth Charge, with puts accounting for a bearish 86 percent of the total.

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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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