Options Trading News

One investor is milking the dividend yield in Alliance Resource Partners and using options to fatten the profits.

Our tracking systems detected the sale of 1,000 July 60 calls for $1.25 and the purchase of 1,000 June 60 calls for $0.25. Volume was below open interest in the June option but not the July contracts, indicating that an existing short position in the calls was rolled forward by one month.

The investor probably owns shares in the coal-mining partnership, which has a dividend yield of
about 7 percent. Selling calls against the stock allows them to generate income while holding the position but also limits profits to the upside if ARLP were to rally.

In the case of today's trade, they netted an additional $1 of premium. Traders often sell calls against stocks with rich dividend yields, creating an investment resembling a fixed-income position. (See our Education section for more ways that options can be used to make money from the passage of time.)

ARLP is down 1.97 percent to $57.62 in afternoon trading. More than 2,200 contracts have traded so far today, 10 times the daily average.