Options Trading News

March 1, 2013  Fri 5:15 AM CT

Barbarians have been at the gates of CommonWealth REIT, and yesterday the options traders jumped in.

optionMONSTER's Heat Seeker system detected the purchase of about 2,000 October 25 calls for $1.30. Seconds later, a similar number of October 30 calls were bought for $0.35. Volume was more than triple the previous open interest at each strike, indicating that new money was put to work on the long side.

These long calls lock in prices where investor can buy the stock no matter how high it may rise, which gives them potentially huge leverage if it continues to advance. (See our Education section)

CWH exploded higher on Tuesday after Corvex Management and Related Cos. offered to buy the real-estate investment trust for $27 a share, arguing that they could manage it more profitably.

The shares were up barely 2 percent when yesterday's calls were purchased, but the traders were apparently onto something because CWH rallied hard into the close and shot up 12 percent to $25.25. Related and Corvex apparently think that the shares belong closer to $50, so if they work toward that level the call buyers will be looking at quadruple-digit gains.

Total option volume was 14 times greater than average in the name.

(A version of this post appeared on InsideOptions Pro yesterday.)
Share this article with your friends


Premium Services

Education & Strategy

The art of trading

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.

View more education articles »