Options Trading News

January 22, 2014  Wed 4:45 AM CT

Dow Chemical exploded higher yesterday, and option activity went through the roof.

Almost 141,000 contracts changed hands in the name, compared with volume of 12,436 in an average session. Calls accounted for more than 80 percent of the volume, a reflection of the session's strongly bullish tone.

The largest transaction on optionMONSTER's Heat Seeker monitoring program was a call roll as an investor took profits on a winning trade. The investor sold 10,000 February 43 calls for $2.93 and bought 10,000 February 47 calls for $0.74. He or she collected a credit of $2.19 and still has the right to make money from further upside in the stock price. (See our Education section)

DOW rallied 6.64 percent to $45.93 after activist investor Daniel Loeb took a stake in the company and urged management to spin off its petrochemical business. It was the stock's highest closing price since October 2007.

The shares are also up 12 percent since getting recommended on the Dec. 12 installment our proprietary Market Action webinar. Dow is scheduled to report earnings next Wednesday, Jan. 29.

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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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