Options Trading News

June 19, 2013  Wed 3:16 AM CT

One large trader sees limited upside in the KBW Bank Index.

optionMONSTER systems show that all of the BKX option volume yesterday was in a single print. A trader sold 8,000 August 62.50 calls for $1.05, below the listed bid price at the time. This volume compared to the total daily average of just 276 contracts, representing a new position as there was no previous open interest in that strike.

The call selling is a bet that the index won't be above 62.50 by expiration in mid-August. There is no single underlying stock for BKX, so this is clearly not a traditional covered call position, but the options could have been sold against a basket of names in the index to create a similar strategy. (See our Education section)

The BKX was up 0.81 percent yesterday to close at 61.11. The index hit 62.92 at the end of May, its highest reading since November 2008. It has been climbing for the last year from levels below 44.
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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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