OptionsHouse

Options Trading News

November 19, 2012  Mon 11:19 AM CT

PAY: SEE CHART GET CHAIN FIND STRATEGIES
Traders apparently think that VeriFone is a safe bet as the former high-flying stock attempts to hold a key support level.

optionMONSTER's tracking programs detected the sale of about 2,300 December 30 puts for $1.80. Volume was almost quadruple previous open interest at the strike, indicating that new positions were initiated.

The investor is now obligated to buy shares for $30 if they close below that price on expiration, but including the credit earned their entry price would be $28.20. Above $30, the puts expire worthless and they'll keep the premium as profit.

PAY is up 4.6 percent to $30.23 in early afternoon trading. The maker of credit-card readers enjoyed a huge rally between March 2009 and March 2011, climbing from below $4 to over $50. It's been churning since then as earnings results have weakened and is back to a consolidation level from about two years ago, which could be leading some traders to believe that it's now at support.

Traders often sell puts when they like a stock and expect downside to be limited. The benefit of the strategy is that it doesn't require any cash up front and lets investors profit from the normal process of time decay, which lowers premiums as expiration approaches. The risk is that a major decline occurs in the share price, forcing them to own the stock for more than it's worth. (See our Education section for more on how to turn time into money using options.)
 
Some 3,600 contracts have traded so far today, more than quadruple the daily average.
Share this article with your friends


OptionsHouse

Premium Services

Upcoming Webinar:

Using Options For Income

http://bit.ly/1nY1OKA

Jon Najarian and Adam Mesh of Options Wealth Machine discuss a detailed strategy utilizing credit spreads to generate income, and how any level of trader can use this simple trading technique.

Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

View more education articles »