Options Trading News

May 25, 2012  Fri 11:27 AM CT

European stocks are back near their 2011 lows, and one investor is bottom fishing.

optionMONSTER's Heat Seeker tracking system detected the purchase of 4,000 July 42 calls on the Vanguard MSCI Europe Fund for $1.25. There was no open interest in the strike before the trade appeared.

The VGK is up fractionally to $40.27 in early afternoon trading but has lost about 13 percent of its value since the beginning of April. The exchange-traded fund, whose largest holdings include Nestle, HSBC, and BP, has taken a beating as investors worry about slowing growth and the sovereign-debt crisis.

Owning calls will let the investor profit from an improvement in sentiment with limited risk. They will roughly triple in value if the VGK rises about 10 percent to the same $44 level where it began the month. The premium will be lost if it fails to rally, but much less capital is at risk in the options than in buying shares directly. (See our Education section)

Overall option volume in VGK is 12 times greater than average today, and call outnumber puts by a bullish 55-to-1 ratio.
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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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