Options Trading News

January 14, 2013  Mon 4:14 AM CT

One call strike dominated the option trading in TJX on Friday as the discount retailer moved higher.

Of the 38,282 contracts that traded in the name, 35,964 were in the February 45 calls, according to optionMONSTER systems show that more than 34,000 of which are in the February 45 calls. This was new positioning, as the open interest in the name was just 488 contracts at the start of the session.

But before anyone jumps on the bull bandwagon, a closer look is necessary. Most of these calls were sold, led by a big block of 27,536 that went for $0.45, below the listed bid price at the time.
The activity wasn't tied to any trading in the underlying shares identified by our systems on Friday. The calls could have been sold naked in a bet that TJX won't move much higher, or they could have traded against an existing long position in a covered call strategy. The latter trade would be bullish only up to the strike price. (See our Education section)

TJX rose 0.53 percent on Friday to close the week at $43.96. It tested support at $40 in early November but was up at resistance at $45 last week. 
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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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