Options Trading News

December 11, 2012  Tue 4:47 AM CT

Louisiana-Pacific drew bullish option activity for the second time in a week yesterday with the lumber company trading just under five-year highs.

A trader sold the 1,000 January 16 puts for $0.42 to $0.45 and bought the same number of January 19 calls for $0.47 to $0.50, according to optionMONSTER's tracking systems. The volume was about 5 times the open interest in each strike at the start of the session, indicating new activity.

LPX rose 2.03 percent yesterday to close at $17.59. The stock has been climbing since breaking above its 50-day moving average around the $13 level in early October. Shares are just below their peak of $17.84 reached on the day after Thanksgiving, their highest intraday price since October 2007.

This combination trade is directionally similar to buying stock but seeks to employ the leverage afforded by options. The strategy is looking for LPX to rise roughly 11 percent by expiration in mid-January.

That would allow the trader to keep the credit from the put sale and profit from any gains in the long calls. But if the stock is below $16 at that time, the calls will expire worthless and the trader will be obligated to buy shares at an effective price around $15.55, including the proceeds from the short puts. (See our Education section)

The trade followed bullish buying in the December 20 calls last week. Yesterday's total option volume in the name was nearly triple its daily average.
Share this article with your friends


Premium Services

Upcoming Webinar:

Using Options For Income


Jon Najarian and Adam Mesh of Options Wealth Machine discuss a detailed strategy utilizing credit spreads to generate income, and how any level of trader can use this simple trading technique.

Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

View more education articles »