Options Trading News

August 1, 2013  Thu 4:45 AM CT

Traders want to print money with Lexmark.

optionMONSTER's trade scanners detected the sale of almost 2,400 August 37 puts for $0.70 to $0.65. Volume was more than triple previous open interest at the strike, indicating that new positions were initiated.

Selling puts creates an obligation to buy shares at the strike price if they're below that level on expiration. He or she is essentially providing insurance to the market, agreeing to compensate other traders on a drop below $37. If it holds above the strike, the puts expire worthless and they'll keep the premium as profit.

Traders use this strategy when they like a stock but don't want to shell out cash to get long up front. It has the double advantage of letting them collect income while programming a buy order below the current price. The main risk is a dramatic selloff. (See our Education section)

LXK rose 0.27 percent to $37.49 yesterday and is up 58 percent in the last six months. Although most of its revenue still comes from the weakening computer-printer market, the company has been growing quickly in software and services. Earnings beat expectations the last two quarters.

Total option volume was twice the daily average in the session.
Share this article with your friends


Premium Services

Education & Strategy

Dissecting a big institutional trade

This week's column will study a recent call ratio spread. We're not recommending using this strategy because it has potentially huge risk. But we can learn from this different use of options by a large institutional investor.

View more education articles »