Options Trading News

January 10, 2013  Thu 4:14 AM CT

A long-term trade is looking for the SPDR Utilities Fund to move higher in the next two years.

optionMONSTER systems show that more than 54,000 XLU options traded on the day, compared to daily average of just 13,600 in the last month. Dominating the action was a January 2015 call spread.

A trader bought 24,611 of the 38 calls for the ask price of $0.80 and, seconds later, sold the same number of the 40 calls for $0.36. The volume was well above the previous open interest at each strike, indicating new activity.

This vertical spread cost the trader $0.44, which is the amount at risk if the XLU remains below $38 at expiration in two years. The maximum gain of $1.56 would be made if shares are above $40 at that time. (See our Education section)

The XLU finished the day at $35.21, down fractionally on the day and in the middle of its recent range. The exchange-traded fund set a 52-week high of 38.54 early August.
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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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