Options Trading News

April 5, 2013  Fri 2:33 AM CT

Chimera Investment is at its highest levels in nearly two years, but at least one large trader is positioning for a potential pullback in the real-estate investment trust.

optionMONSTER's Depth Charge system detected the purchase of 9,033 September 3 puts for $0.15 yesterday. The volume dwarfed the strike's open interest of just 121 contracts before the session began, so this is clearly fresh buying.

CIM closed fractionally higher at $3.17 yesterday. The stock peaked at $3.34 on March 26, its highest intraday price since July 2011.

Yesterday's long puts weren't tied to any stock trading identified by our systems in the session but, given how far CIM has run, they could have been bought to protect a long position established earlier. If not, they would be making a straight bearish bet that the stock will decline in the next 5-1/2 months.

These options lock in the price where traders can sell the stock no matter how far it might fall, but they will expire worthless if shares remain above the $3 strike price through mid-September. (See our Education section)

Total option volume in CIM was 9,635 contracts yesterday, triple its daily average for the last month. Only 600 calls traded in the entire session, a reflection of the day's bearish sentiment.
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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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