Options Trading News

January 17, 2014  Fri 11:05 AM CT

Odd and very big trading is hitting Procter & Gamble today.

More than 286,000 PG options have traded so far this morning, more than 10 times its daily average for the last month. optionMONSTER's Depth Charge system first identified put buying that was well out of the money as a trader purchased 20,000 February 60 puts, 10,000 of them for $0.03 and another 10,000 for $0.02. The volume was 5 times the previous open interest at that strike, clearly showing that these are new positions. (See our Education section)

The puts weren't tied to any trading in PG shares identified by our systems. The delta of those options is less than 0.01, meaning that they will gain less than $0.01 for a $1 drop in PG shares. So this appears to be a hedging an existing position against an extreme drop.

Less than an hour later we saw huge blocks trade in the January 2015 65 calls. Our scanners show that 250,000 of those contracts were sold for $15 and $15.10 in blocks of more than 80,000 options at a time. The volume was below the previous open in that strike, so they could be opening or closing positions. If they are new, this could be in-the-money call selling, which would also be a bet on much lower prices in PG.

All of this trading is significant and quite unusual for PG, which is down 0.56 percent to $80.11 this afternoon. The consumer-products giant has been trending lower from its 52-week high of $85.82 set in late November. The stock was last below $60 in mid-2012.
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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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