Options Trading News

January 16, 2013  Wed 12:21 PM CT

The bulls are hoping for good news from SLM when the student-loan company issues results tomorrow morning.

optionMONSTER's Heat Seeker tracking program detected the purchase of about 5,000 July 20 calls against open interest of just 6 contracts. Premiums started around $0.31 and then rose to $0.35 as the trades crossed, which shows the buying pattern.

Those long calls lock in the price where investors can buy shares over the next six months. Given how cheap they are, the options could generate huge leverage if the stock rallies. The strategy also reduces the amount of capital at risk compared with buying common equity, thereby limiting the amount of money that can be lost if it drops. (See our Education section)

SLM is up 0.06 percent to $17.34 in afternoon trading. The stock has spent the last three months parked at the same area where it's peaked several times since the 2008 market crash, price action that could be leading some investors to expect a big move if resistance is broken.

The next catalyst could come as early as tomorrow morning, when the company is scheduled to present fourth-quarter results.

Total option volume is 11 times greater than average in SLM so far today, according to the Heat Seeker. Calls outnumber puts by a bullish 9-to-1 ratio.
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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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