Options Trading News

February 25, 2013  Mon 2:45 AM CT

Hercules Offshore drew upside option activity as shares rebounded back near four-year highs at the end of last week.

About 1,350 March 6 calls traded in a strong buying pattern on Friday for $0.90 and $0.95, according to optionMONSTER's Heat Seeker system. The volume was more than 5 times higher than the strike's open interest of 254 contracts before the session began, indicating that this is new positioning.

These in-the-money calls lock in the price where traders can buy the stock, no matter how far it may rise. The buyers are looking for HERO to rally further by expiration in three weeks. (See our Education section)

HERO surged 5.47 percent to close the week at $6.94, so some of those calls are already profitable, if only by a few cents. The shallow-water oil and gas driller reached $7.42 on Feb. 15, its highest intraday price since November 2008. Shares pulled back with last week's two-day market slump but bounced at their 50-day moving average on Friday.

Total option volume in the name was 3,028 contracts on Friday, compared with a daily average of just 517 in the last month. Calls outnumbered puts by more than 6 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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