Options Trading News

December 21, 2012  Fri 3:16 AM CT

Enbridge Energy and Consolidated Edison are slow-moving dividend stocks, and investors are milking cash from both.

The first trade occurred in EEP, with 2,600 December 27.50 calls bought for $0.65 and an equal number of January 27.50 calls sold for $0.20. That translates into a net credit of $0.20.

A similar transaction occurred one hour later in ED. About 1,900 December 55 calls were bought for $1.49 while 1,900 January 55s were sold for $1.79, resulting in a credit of $0.30.

Volume was below open interest in the December contracts in each trade, indicating that existing short positions were closed and rolled forward in time. Both strikes were also in the money, which would have forced the investors to sell shares when the options expire at today's close. Adjusting the expirations kept them in the trades for an additional month.

EEP's annual dividend yield is almost 8 percent, and ED's is more than 4 percent. Investors often hold such stocks to earn income and then sell near-the-money calls against them.

This reduces volatility and earns additional income but surrenders the right to profit from a rally. The result is a position that resembles a fixed-income investment. (See our Education section for more on how to turn time into money by selling calls and puts.)

EEP rose 1.4 percent to $28.24 yesterday, while ED advanced 0.07 percent to $56.44. Total option volume was 21 times and 8 times greater than average, respectively.
Share this article with your friends

Invest Like a Monster - San Antonio: October 9-10

Premium Services

Archived Webinar

Education & Strategy

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.

View more education articles »