Options Trading News

July 9, 2013  Tue 2:45 AM CT

A huge trade is counting on limited upside in the iShares Emerging Markets Fund.

optionMONSTER systems show that a trader bought 57,000 August 40.50 calls for the ask price of $0.19 and sold the same number of August 39 calls for $0.52 yesterday. The volume was more than twice the previous open interest at each strike, indicating that this is new positioning.

This strategy is known as a credit spread and takes in $0.33, which the trader will keep as profit if the EEM remains below $39 at expiration in mid-August. The maximum potential loss is $1.17 if it is above $40.50 at that time. (See our Education section)

The EEM was up fractionally yesterday to close at $37.39. The exchange-traded fund was above $44 in early May but fell to $36.16 two weeks ago, its lowest intraday price since November 2011.
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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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