Options Trading News

October 24, 2013  Thu 12:08 PM CT

Construction is getting back in gear, and traders are playing the trend with cement giant Cemex.

optionMONSTER's Heat Seeker system shows that volume picked up early in the December 10 calls. The large initial blocks priced for $1, followed by prints for $1.30 later in the morning. Almost 4,600 contracts traded, compared with previous open interest of just 309 contracts.

These long calls lock in the price where shares can be purchased, letting investors cheaply position for a rally. Today's trade is especially noteworthy because they used in-the-money contracts that will closely track movement in the underlying stock price. (See our Education section)

CX stood at $10.55 when the calls hit, but then it started moving and is now up 3.02 percent to $10.90 in afternoon trading. It spent most of the month consolidating around the same $10.50 level that was resistance in February, which could make some chart watchers think that it's ready to start rallying again.

The stock appreciated almost 500 percent between late 2011 and May 2013 as homebuilders rose. The entire group has been consolidating for months, and traders are looking for a continuation of that earlier move. (See our researchLAB service to analyze the performance of more than 100 industry groups over different time frames.)

Interest rates have been falling in the last month, promising to increase home affordability. PulteGroup, the largest builder by revenue, also reported strong results today and expressed confidence demand will improve.

Total option volume in CX is triple the daily average so far today, according to the Heat Seeker. Calls outnumber puts by a highly bullish 7-to-1 ratio.
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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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