Options Trading News

February 22, 2013  Fri 12:22 PM CT

Sourcefire is ripping today, and some traders don't want to be left behind.

optionMONSTER's Heat Seeker monitoring system detected the purchase of almost 1,900 April 50 calls, most of which priced for $2.65 to $2.90. Volume was 27 times open interest at the strike, indicating that new money was put to work.

Those calls lock in the price where investors can buy shares in the maker of computer-security products. That will result in some nice leverage if it continues to rally, but they'll also lose their entire investment if it stalls or retreats.

FIRE gapped higher this morning and us currently up 14.2 percent to $48.25 in afternoon trading. The move comes after fourth-quarter revenue blew past estimates and guidance for the current period was better than expected. It was at least the fifth straight quarter with strong results.

Shares are now around the same level where they peaked in November and December. They're also parked at their 200-day moving average, which could be making some traders nervous about a pullback.

Owning calls is an ideal way to deal with such a setup because they provide upside exposure at a fraction of the share price. That limits risk and eliminates the need for a stop loss. (See our Education section for more how options can be used to manage risk.)

Some 6,100 contracts have traded in FIRE so far today, quadruple the daily average. Calls account for nearly three-quarters of the total.
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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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