Options Trading News

May 14, 2013  Tue 4:14 AM CT

Dresser Rand is an oil-equipment name, and it was discovered by the energy bulls yesterday.

optionMONSTER's Heat Seeker system detected the purchase of more than 2,000 September 70 calls, most of which priced for $1.80. Volume was more than 30 times open interest at the strike, indicating that new money was put to work on the long side.

Long calls lock in the price where shares can be purchased, so they have the potential to generate significant leverage from even a modest rally. A 20 percent gain in the stock price, for instance, would result in a profit of almost 100 percent. The contracts also spare the investor the difficulty of timing an entry. (See our Education section for more on how options can be used to manage positions.)

DRC rose 0.13 percent to $61.47 yesterday. Last month the stock fell to its 200-day moving average, then bounced, and it has been holding its ground near the all-time high of $63.41 achieved in February ever since.

Total option volume was 4 times greater than average in the session, with calls outnumbering puts by 50 to1.

(A version of this post appeared on InsideOptions Pro yesterday.)
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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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