Options Trading News

February 21, 2013  Thu 12:20 PM CT

One investor is betting that Electronic Arts isn't done rallying yet.

optionMONSTER's Heat Seeker monitoring system detected the purchase of about 8,000 September 20 calls for roughly $1.02 and the sale of 5,000 September 17 puts for $1.70. Volume was more than 6 times the previous open interest at each strike, indicating that new positions were implemented.

The trader collected a credit of about $34,000 and stands to earn huge profits if the video-game maker rallies to $20. He or she will also be required to buy shares for $17 if they drop to that level.

The unusual aspect of the strategy is that more calls were bought than the number of puts sold, providing greater leverage to the upside. The position will benefit from a dramatic move higher while allowing him or her to get long on a pullback, reflecting a strongly bullish opinion of the stock. (See our Education section for more on how options can be used to express a wide range of theses.)

EA is up fractionally at $17.50 in afternoon trading but has risen 21 percent so far this year. Sentiment toward the name had been bearish for years amid falling sales of traditional games, but the company has recently been transitioning to an online business model.

Today's option strategy will keep the trader in the game well into the second half, even if the shares take an extended pause. Total option volume in EA is triple the daily average so far today, according to the Heat Seeker.
Share this article with your friends

Invest Like a Monster - San Antonio: October 9-10

Premium Services

Archived Webinar

Education & Strategy

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.

View more education articles »