Options Trading News

December 17, 2013  Tue 9:26 AM CT

A large trader is betting on a cap in shares of General Motors.
optionMONSTER systems detected the sale of 13,500 June 48 calls for the bid price of $1.05 this morning. Open interest in the strike was a mere 214 contracts before the trade appeared, so this is a clearly a new position.

These options were likely sold against long shares in a covered-call position, as our systems also found very large GM stock purchases about 20 minutes earlier. The covered call is one of the few plays where small time gaps are sometimes seen between stock and option trades.

The strategy allows the investor to collect premium while holding long shares but will not participate in gains above the strike price. (See our Education section)

GM is up 0.52 percent to $41.65 today, its highest level since 2004. The auto maker's shares have traded up from under $25 a year ago. 
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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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