Options Trading News

November 28, 2012  Wed 9:56 AM CT

Lorillard has been trying to bounce, and one investor is looking for the gains to continue.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 2,500 June 125 calls for $5.40 and the sale of an equal number of January 125 calls for $1.60. Volume was below open interest in the Januarys but not the Junes, indicating that an existing position was rolled from one contract to the other.

The investor collected a credit of $3.80 and now has an additional five months to benefit from upside in the tobacco stock. Adjusting the position makes them less likely to lose money to time decay over the next 1-1/2 months and keeps them in the game for a springtime rally. (See our Education section for more on how the calendar affects option premiums.)

LO is up 0.32 percent to $120.43. It peaked around $140 in July, pulled back to long-term support around $110, and has been bouncing since then, resulting in a gain of about 7 percent since mid-November. The company gets almost 90 percent of its sales from Newport menthol cigarettes.

Total option volume is 6 times greater than average so far today, according to Heat Seeker. Calls outnumber puts by 30 to 1.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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