Options Trading News

November 14, 2013  Thu 11:48 AM CT

Johnson Controls has been going straight up, and the bulls think it won't stop.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 3,000 December 50 calls for $0.75 and the sale of an equal number of December 47 puts for $0.70. Volume is more than 7 times open interest in each strike, indicating that new positions were initiated.

The long calls lock in a $50 entry price on the shares, while selling the puts generates income and creates an obligation to buy JCI on a drop to $47. Combining the two strategies is highly bullish, letting the investor benefit from a quick rally while programming an entry price in the event of a pullback.

He or she paid just $0.05 to open the trade. It will track movements less closely as time progresses and expire worthless if the stock remains between the two strike prices on expiration next month. (See our Education section)

JCI is up 1.2 percent to $49.11 in afternoon trading and has risen 60 percent so far this year. It's been rallying along with other industrials and broke out to new all-time highs after a strong earnings report on Oct. 29.

Total option volume is almost twice the daily average so far in the name.
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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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