Options Trading News

April 10, 2013  Wed 3:16 AM CT

Scripps Networks Interactive has been melting higher, and one investor is using options to manage the trade.

optionMONSTER's tracking programs detected the sale of 1,850 September 70 calls for $2.81 and the purchase of 1,250 June 65 calls for $3.90. Volume was below open interest in the June contracts, indicating that an existing short position was closed and rolled forward in time.

The investor also increased the size of the trade, allowing collecting a credit of $32,350 along the way. He or she probably own shares in the media company, whose properties include the Food Network and Travel Channel.

Selling calls allows investors to earn premium from the passage of time while holding their positions, reducing volatility and providing some cushion in the event of a pullback. (See our Education Section for more on the strategy, known as a covered call.)

SNI fell 0.9 percent to $66.29 yesterday, but it is up 39 percent in the last year and hit an all-time high of $67.26 earlier in the week.

The main benefit of the rolling the short calls to the higher strike is that the investor now has the right to sell shares for $5 more. Without that adjustment, the trader would have been forced to exit at $65 on June expiration.

Total option volume was 46 times greater than average in the session.
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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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