Options Trading News

January 22, 2014  Wed 3:16 AM CT

Rentech Nitrogen Partners has been a roller-coaster ride, but now traders are betting that the next swing will be higher.

optionMONSTER's Heat Seeker monitoring program detected the purchase of more than 3,000 April 20 calls yesterday, most of which priced for $1.90 to $2.10. Volume slightly exceeded the previous open interest, so it appears that new money was put to work.

These long calls lock in the price where shares can be purchased in the fertilizer company. Holders can now cheaply position for gains and stand to enjoy significant leverage in a rally. For instance, a 43 percent move in the stock will drive up the options by 400 percent. (See our Education section)

RNF rose 5.66 percent to $21.10 yesterday. It was spun off from Rentech as a limited partnership in late 2011 for $20, rallied all the way to $49.18 early last year, and bottomed out at $16.90 in December. Yesterday's option activity reflects a belief that shares will continue to rebound.

More than 5,000 contracts traded in the session, compared with 500 on average for the last month. Overall calls outnumbered puts by a bullish 11-to-1 ratio.
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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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