Options Trading News

August 30, 2013  Fri 1:33 PM CT


Ctrip.com International has been a monster, and traders are looking for a breakout to new highs.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 2,000 January 55 calls for $2.40 and the sale of an equal number of January 60 calls for $1.40. That translates into a cost of $1.

Volume was below open interest at the lower strike, so there are two possible explanations for the trade. One is that both positions were initiated, in which case it was a bullish call spread with a maximum profit of 400 percent on a move to $60 or higher by expiration.

Alternately, he or she may own shares in the Chinese online travel agency and sold the January 55s as part of a covered-call strategy. If that's the case, they rolled the position higher, raising their eventual exit price by $5. (See our Education Section for more.)

Either way the activity is highly bullish, looking for the shares to trade north of $55 by early next year.

CTRP fell 1.70 percent to $46.08 in afternoon trading, but has more than doubled so far this year. The company benefited from a wave of enthusiasm toward Chinese Internet stocks earlier this year, and has reported strong results for at least three straight quarters.

Total option volume is almost twice the average in the name so far today, according to Heat Seeker. Calls outnumber puts by 32 to 1.

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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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