Options Trading News

April 18, 2013  Thu 2:45 AM CT

Someone thinks TE Connectivity is running out of gas.

optionMONSTER's monitoring programs detected the sale of some 4,700 July 40 calls against open interest of 570 contracts. Almost all the volume priced for $1.50.

The investor probably owns shares in the maker of electric cables, which has been drifting lower since making an all-time high above $42 last month. Writing calls against the position obligates him or her to exit for $40 if TEL is above that level on expiration, but the trader would receive $41.50 including the credit earned yesterday. Below $40 the trader would keep the $1.50 and the contracts will become worthless.

Known as a covered call, the strategy is commonly used when investors are lukewarm toward a company and expect few gains in the near term. It allows them to reduce their capital at risk and to earn some additional income from the passage of time. (See our Education section for more.)

TEL declined 3.96 percent to $39.73 yesterday. The scheduled big event that could potentially affect the stock is the release of second-quarter earnings next Wednesday, April 24.

Total option volume was 63 times greater than average in the session.

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