Options Trading News

November 27, 2012  Tue 11:05 AM CT

BMC Software has been asleep for a while, and one investor apparently thinks that it will remain dormant.

optionMONSTER's tracking programs detected the sale of 5,550 February 39 puts for $1.40 and 5,550 February 41 calls for $1.80. Volume was more than 5 times open interest at both strikes.

The trader collected a credit of $3.20, which he or she will keep as profit if the shares remain between the strike prices on expiration. Gains will erode outside that range, turning to losses below $35.80 and above $44.20.

Known as a short strangle, the position makes money from time decay erasing the value of the options sold short. (See our Education section for other market-neutral strategies.)

BMC, which is up 1.64 percent to $40.92 in early afternoon trading, has been moving sideways since February. During that time, the maker of enterprise software has mostly stayed between $36 and $44. Today's short strangle is looking for that range to remain in effect.

Total option volume is 16 times greater than average so far in the session.
Share this article with your friends



The fastest money in the market
View full report »

Premium Services

Education & Strategy

The art of trading

As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

View more education articles »