Options Trading News

July 11, 2013  Thu 2:45 AM CT

A bullish call spread led the option trade in Linn Energy yesterday as shares continued to recover lost ground.

A trader bought 2,200 January 25 calls for the ask price of $4.30 and, at the same time, sold 4,400 January 30 calls for the bid price of $2, according to optionMONSTER's Heat Seeker tracking system.  

This strategy, known as a ratio spread because twice as many contracts were sold than bought, costs the trader just $0.30, which is the amount at risk if LINE is anywhere below $25 at expiration in mid-January. The maximum gain would come if shares are around $30 at that time, but above that level the trader would be effectively short shares. (See our Education section)

LINE gained 2.5 percent yesterday to close at $26.64. Shares tumbled last week after it was announced that the company was being investigated for possible violations of securities laws. The stock hit a low of $20.25 on Friday after trading above $33 at the start of that week.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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