Options Trading News

November 27, 2012  Tue 10:41 AM CT

General Electric has given up its morning gains, but a long-term trade is betting that further downside will be limited in coming years.

GE is up a penny to $21.07 after reaching a session high of $21.20. The stock bounced off support at $20 two weeks ago, its lowest level since the end of July, and hit a 52-week high above $23 at the start of October.

The biggest option trade in the name today is in the January 2015 18 puts. optionMONSTER's systems detected the sale of 5,000 of those puts for the bid price of $2.12, clearly a new position because the volume was twice the previous open interest.

The put selling is a bet that GE will be above $18 at expiration in more than two years. The trader is also making a bet that the implied volatility of the puts is greater than the future volatility of the stock.

The implied volatility of those puts is 27 percent, while the 30-day historical volatility for GE stock is 21 percent, a four-month high. It has not been above 27 percent since the first days of 2012.
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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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