Options Trading News

November 14, 2013  Thu 9:26 AM CT

A huge call sale leads the early option action in General Motors as it comes off multi-year highs hit this morning.

optionMONSTER systems show that a single trade in the January 42 calls dominates heavy activity in the auto maker, with 30,000 of those contracts sold for $0.61. With volume that is almost 4 times the previous open interest at that strike, this is clearly a new position.

The calls weren't tied to any trading in the underlying shares identified by our scanners today, so it could be naked selling. That would have an initial bearish bias and significant risk if GM runs above $42.

But the options could also have been sold against an existing long position in a covered-call strategy, which would be bullish up to that strike but not beyond. (See our Education section)

GM is off 0.16 percent to $38.38 after hitting $38.80 this morning, its highest price since early 2011. Shares have been trending higher for the last year with a low below $24 last November. 
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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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