Options Trading News

December 28, 2012  Fri 3:16 AM CT

A bearish spread targeted Dow Chemical yesterday as its shares held near resistance.

optionMONSTER systems show that a trader bought 2,500 February 20 puts for the ask price of $0.69 and sold 5,000 February 28 puts for $0.33. The volume at both strikes was significantly higher than the previous open interest, so this is a new vertical spread.

It cost only $0.03 to open the trade, which is also known as a ratio spread because one strike has twice the volume of the other. The position takes a maximum profit if shares are right around $28 upon expiration in mid-February. If the stock is below that level, the trader faces assignment on the additional short puts and the obligation to buy shares. (See our Education section)

DOW fell 0.93 percent yesterday to close at $32.12. The stock hit a 52-week low under $28 in mid-November but last week tested resistance at $33, its highest level since June.
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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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