Options Trading News

March 8, 2013  Fri 3:16 AM CT

Fusion-IO has been falling for months, and the bears are looking for more downside.

optionMONSTER's Depth Charge monitoring program detected the purchase of about 5,000 June 16 puts for $1.35 and the sale of an equal number of June 14 puts for $0.35. Volume exceeded the previous open interest at each strike, indicating that this is a new put vertical spread.

The strategy is designed to leverage a drop of a limited size, in this case from $16 to $13. If the shares traverse that range, the spread will inflate to $3--representing a profit of 200 percent based on its $1 entry cost. (See our Education section)

FIO rose 2.91 percent to $17 yesterday. Weak results have caused the developer of data-center systems to lose about 47 percent of its value since early October. The stock has been trying to rebound in the last two weeks, but yesterday's trader apparently thinks that the bearish momentum will push shares lower once again.

Total option volume was triple the daily average in the session, according to the Depth Charge. Puts outnumbered calls by almost 6 to 1.
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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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