Options Trading News

November 30, 2012  Fri 3:16 AM CT

Omnicare rallied strongly yesterday and attracted a bullish option play.

OCR rose 3.91 percent to $35.64, its highest close since Nov. 6. Shares of the health-care services company had reached a five-year intraday high of $36.81 the week before.

A trader sold 2,000 March 33 puts for the bid price of $1.25 while buying 2,000 March 38 calls for $0.90, according to optionMONSTER's tracking systems. The volume at each strike was above the open interest at the start of the session, indicating new activity.

This combination trade sold the puts to offset the cost of purchasing the calls and takes in a net credit of $0.35, which will be kept if the stock is between $33 and $38 at expiration in mid-March. The trader will reap further gains with shares above that range but faces the obligation to buy the stock if the price falls below it. (See our Education section)
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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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