Options Trading News

October 3, 2012  Wed 10:43 AM CT

As Adtran trades near three-year lows, one option strategy is betting on further downside in the communication-service provider.

ADTN is down 1.05 percent to $16.93 after falling to $16.30 earlier this morning, its lowest level since April 2008. The shares have been stair-stepping down from a 52-week high just below $39 set in late February.

A trader bought 4,000 October 18 puts for the ask price of $1.80, according to optionMONSTER's Depth Charge system. More than 5,400 of those puts changed hands in total against open interest of 307 in the strike at the start of the day, volume that indicates new activity.

Minutes earlier a block of 2,062 October 21 puts sold for $4.25. A total of 3,062 traded in that strike, below the open interest of 3,526 contracts.

Given that the October 21 puts are well in the money, it appears that the trader is rolling the position down to the lower strike price and doubling the number of options. This provides the opportunity for further gains if shares continue lower while taking some profit off the table. (See our Education section)
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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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