Options Trading News

May 15, 2013  Wed 4:14 AM CT

PDC Energy is trying to recapture multi-year highs reached two months ago, but one trader is positioning for a potential drop.

optionMONSTER's Depth Charge system detected the purchase of 2,000 June 45 puts yesterday, led by a print of 1,575 that went for $1.50. This is clearly a new position, as open interest in the strike was just 130 contracts before the trade appeared.

PDCE rose 3.8 percent yesterday to close at $49.73. The oil and natural-gas producer had fallen after hitting $53.80 in mid-March, its highest level since September 2008, but rebounded after its first-quarter at the start of this month.

Yesterday's put buying, which locks in the price where shares can be sold, wasn't tied to any stock trades identified by our systems during the session. It could be a protective hedge on a long position established earlier or an outright bearish bet that PDCE will fall below $43.50 by expiration in mid-June. (See our Education section)

Total option volume in the name topped 3,500 contracts yesterday, 17 times its daily average for the last month. Puts outnumbered calls by 6.5 to 1.
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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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