Traders are calling a top in Red Hat.
Our monitoring systems detected a surge of option activity in the software company yesterday, but almost all of it occurred over a period of less than 10 minutes. During that time, some 16,000 September 60 calls changed hands, mostly for the bid prices of $0.70 and $0.80. Open interest was 8,023 contracts when the session began, so new positions were initiated.
RHT fell 2 percent to $55.89, and has been trading in a range between $50 and $62 since April. Writing calls locks in the price at which investors must sell shares, so they're essentially betting that they won't advance much past $60.
The strategy, which extracts the time value before expiration three weeks from now, is often used when upside appears to be limited. See the discussion of covered calls in our Education Section for more.
Overall option volume in RHT was 10 times greater than average in the session.
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