Options Trading News

July 16, 2013  Tue 4:14 AM CT

A long-term call spread dominated yesterday's option activity in Achillion Pharmaceuticals.

optionMONSTER systems show that 53,781 ACHN options changed hands in the session, compared to a daily average of just 3,445. Almost all of that action is in a January 2015 call spread.

A trader bought 25,000 of the 7.50 calls for $2.64 and sold the same number of the 20 calls for $0.39. The relative open interests were 49 and 60, so this is a new call spread. (See our Education section)

The postition cost the trader $2.25, which is the most that can be lost if ACHN is anywhere below $7.50 at expiration in 18 months. The maximum profit would be realized if shares are above $20.
ACHN was up 1.15 percent to close at $7.03 yesterday. The drug developer has been working its way higher since gapping down on July 2. Shares hit a high of exactly $20 in early 2007.
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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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