Options Trading News

February 27, 2013  Wed 4:14 AM CT

Medical device maker Cyberonics has been trying to rebound after falling sharply last month, but one trader remains cautious.

optionMONSTER's Depth Charge system shows that a trader sold 2,682 July 45 puts for $4.10 and bought the same number of October 45 puts for $5.50 yesterday. Volume was above open interest in the July strike but below it in the October contracts.

This indicates that the trader is rolling a long-put position to a later date, paying a net $1.40 to stay in the trade for an additional three months. These puts, which lock in the price where shares can be sold, could be a protective hedge on a long position or an outright bearish bet that the stock will fall by expiration in mid-October. (See our Education section)

CYBX rose fractionally yesterday to close at $46.24, just below its 200-day moving average. The stock hit a 52-week high of $56.73 on Jan. 9 but then fell precipitously for several sessions, ending the month at $43.36. The company regained some of that ground on Friday when it gapped higher after beating earnings and revenue estimates.

The put roll made up almost all of the 5,726 options that traded in the name yesterday, volume that was more than 17 times its daily average for the last month. Only 12 calls changed hands in the entire session.
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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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