Options Trading News

May 17, 2013  Fri 10:46 AM CT

Someone is using options to smooth the ride in natural-gas producer Range Resources.

optionMONSTER's monitoring systems detected the purchase of 1,975 May 80 calls for $0.04 and the sale of a matching number of June 82.50 calls for $0.59. Volume was below open interest in the May contracts, indicating that an existing short position was closed and rolled forward in time.

The investor probably owns RRC shares and is using the options as part of a covered call strategy, which generates income and reduces volatility in return for limiting potential gains. Adjusting the position raised by $2.50 the price at which they must exit the stock, while keeping them in the trade for an additional month. It also yielded a credit of $0.55. (See our Education section)

RRC is up 0.64 percent to $75.34 in morning trading and has been steadily pulling back after a 19 percent rally in the first quarter. Shares have been finding support at their rising 100-day moving average since, which could make some chart watchers think that it's still trending higher.

It's also been consolidating above its previous all-time highs around $74, another potentially bullish technical pattern.

Total option volume is quadruple the daily average in RRC so far today. Calls outnumber puts by a bullish 16-to-1 ratio.
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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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