Options Trading News

February 12, 2013  Tue 3:16 AM CT

MGIC Investment reports fourth-quarter earnings at the end of this month, and traders are positioning for a potential drop.

More than 14,000 March 2 puts traded in a strong buying pattern yesterday, led by a block of 9,293 that went for $0.12, according to optionMONSTER's Depth Charge system. These are clearly new positions, as the volume was 35 times higher than the strike's open interest of just 336 contracts at the start of the session.

The puts weren't tied to any stock trading identified by our systems yesterday, though they could have been purchased to protect long positions established earlier. Alternatively, they could be making straight bearish bets that MTG will fall back below the $2 strike price by expiration in mid-March. (See our Education section)

MTG slipped 1.82 percent yesterday to close at $2.70. Shares of the mortgage-insurance company bounced off support at $2.50 at the end of January, just above its 50-day moving average, but have been unable to break through resistance around the $3.30 level that goes back to last May.

The stock has been working its way higher since hitting an all-time low of $0.66 after the company's second-quarter report in August. The company is scheduled to announce its next earnings results on Feb. 28.

Total option volume in the name surpassed 16,700 contracts yesterday, more than 5 times its daily average of 3,069 in the last month. Puts outnumbered calls by 15 to 1, a reflection of the day's bearish sentiment.
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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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