Options Trading News

October 23, 2013  Wed 3:16 AM CT

Groupon fell yesterday, and traders bought the pullback in an unusual three-way strategy

optionMONSTER's Heat Seeker monitoring program detected the purchase of 5,000 December 10 calls for $0.96. Equal-sized blocks were sold in the December 8 puts for $0.35 and the December 12 calls for $0.38, translating into a net cost of $0.23.

The position will expand to $2 if GRPN closes at or above $12 on expiration--a profit of 770 percent from the e-commerce stock moving just 22 percent. It also stands to lose money below $8 because the investor wrote puts at that level. (See our Education section)

GRPN ended the session down 6.98 percent to $9.86 after ITG Investment Research cited weakening sales trends. The stock has lost 22 percent of its value in the last month, but more than quadrupled between November 2012 and mid-September.

Traders may also be willing to write puts at the 8 strike because GRPN consolidated above that level in July and August. The next earnings report is scheduled for Nov. 7.

Total option volume was 7 times greater than average in the session, according to Heat Seeker.
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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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