Options Trading News

June 4, 2013  Tue 3:47 AM CT

One trader is betting that Two Harbors Investment will rebound in coming months.

optionMONSTER's Heat Seeker system detected the purchase of 3,010 September 12 calls in less than a minute yesterday, led by a print of 2,462 that went for $0.23. This is clearly a new position, as the volume was well above the strike's open interest of 1,417 contracts before the session began.

These long calls lock in a purchase price of $12.23 for the stock no matter how far it might rise. However, the contracts will expire worthless if the shares remain below $12 through mid-September. (See our Education section)

TWO, which fell 2.18 percent to $10.79 yesterday, has been hit hard along with other real-estate investment trusts in the last month. The stock spiked above $12 after its first-quarter earnings report on May 8 but has been declining steadily ever since, falling below its 200-day moving average last week.

Total option volume in the name yesterday was 6 times its daily average for the last month. Calls outnumbered puts by more than 11 to 1, a reflection of the session's bullish sentiment.
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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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