Options Trading News

October 10, 2012  Wed 9:58 AM CT

Bearish plays dominate the unusual options action today, and the iShares Silver Fund is one of the biggest targets even as it rises.

The SLV is up 0.73 percent to $33.06 this morning after testing resistance at $34 for the last three weeks. But the previous rally off the 52-week lows below $26 in the previous two months was substantial, taking the exchange-traded fund back to levels last seen on the first day of March as it came off a high above $36 set the previous day.

Today's option volume is topped by a large combination trade in the January 2015 options. A trader bought 16,650 of the 26 puts for $3.55 and, at the same time, sold the same number of the 38 calls for $4.65. The volume was slightly more than open interest at each strike, indicating that this is a new position.

This combination trade takes in a credit of $1.10, which will be the profit at expiration if the SLV is between the two strikes. It could also be a collar on long shares in the SLV, protecting against a decline below $26 but giving up any gains beyond $38. (See our Education section)
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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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