Options Trading News

January 11, 2013  Fri 2:14 AM CT

One investor is afraid that Perfect World might drop after a New Year rally.

optionMONSTER's Depth Charge monitoring program detected the purchase of 2,000 June 10 puts for $0.55 and the sale of 2,000 June 14 calls for $0.50. Volume was more than quadruple the previous open interest at each strike.

The trade cost $0.05 and will make money if the Chinese gaming stock pushes lower. It also will turn into a short position above $14, so the investor probably owns the shares and is using the options as a hedge in what's known as a collar. (See our Education section)

PWRD rose 0.74 percent to $12.29 yesterday. It peaked near $50 in late 2009, then proceeded to lose 80 percent of its value over the next two years. The shares spent all of 2012 building support at $10 and began 2013 with a rally.

Total option volume was almost 20 times greater than average in the session, according to the Depth Charge.
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The art of trading

As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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