Options Trading News

July 12, 2013  Fri 12:20 PM CT

Traders have discovered Alaska Air in recent weeks, and it's paid off in spades.

The airline rallied steadily higher for years amid little option activity. It pulled back sharply in May and June after touching an all-time high of $68, only to find support above its 200-day moving average less than three weeks ago. That's when the paper hit.

optionMONSTER's Heat Seeker monitoring program showed initial buys in the August 55 calls for $1.25 to $1.30 back on June 26. Shares started rallying this week, and those contracts are now worth more than $7. On Wednesday there was also buying in the July 55 calls for $1.95 to $2.65 and the July 60s for $0.45 to $0.60. Both of those have more than doubled today as ALK continues to push higher.

Now traders are rolling some of the winning positions forward in time, looking for the stock to resume its monster uptrend. Today the Heat Seeker shows more trades in the July 55 calls and the August 55 calls, this time for $6 and $6.80 respectively. Large blocks were bought at the same time in the October 65s for $2.80 and the October 70s for $1.47.

Swapping the nearer-dated options for longer ones gives the investor more time to enjoy a rally in the name. It also provides protection against a near-term decline because the delta has been reduced. (See our Education section for more on how to put time on your side using option greeks.)

ALK is up 4.13 percent to $62.02 in afternoon trading. Earnings come out on July 25.

Total option volume is 10 times greater than average in the name so far today. The Heat Seeker shows calls outnumbering puts by a bullish 23-to-1 ratio.
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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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